In: Finance
Janicek Corp. is experiencing rapid growth. Dividends are expected to grow at 26 percent per year during the next three years, 16 percent over the following year, and then 6 percent per year indefinitely. The required return on this stock is 12 percent, and the stock currently sells for $84 per share. What is the projected dividend for the coming year? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
Projected dividend | $ |
Projected dividend $ 3.38
Step-1:Calculation of last paid dividend | |||||||
As per dividend discount model, current share price is the present value of future dividends. | |||||||
Present value of 4 years dividend: | |||||||
Year | Dividend | Discount factor | Present value | ||||
a | b | c=1.12^-a | d=b*c | ||||
1 | $ 1.26 | 0.892857 | $ 1.13 | ||||
2 | $ 1.59 | 0.797194 | $ 1.27 | ||||
3 | $ 2.00 | 0.71178 | $ 1.42 | ||||
4 | $ 2.32 | 0.635518 | $ 1.47 | ||||
Total | $ 5.29 | ||||||
Present value of dividend of 4 years thereafter | = | D4*(1+g)/(Ke-g)*DF4 | Where, | ||||
= | $ 26.05 | D4 | = | $ 2.32 | |||
g | = | 6% | |||||
Ke | = | 12% | |||||
DF4 | = | 0.635518 | |||||
Present value of all future dividends | = | $ 5.29 | + | $ 26.05 | |||
= | $ 31.34 | ||||||
Last paid dividend | = | $ 84.00 | / | $ 31.34 | |||
= | $ 2.68 | ||||||
Step-2:Dividend of next year | |||||||
Dividend for the coming year | = | $ 2.68 | * | 1.26 | |||
= | $ 3.38 |