A Corporation is experiencing rapid growth. Dividends are expected to grow at 30 percent per year...

A Corporation is experiencing rapid growth. Dividends are expected to grow at 30 percent per year during the next three years, 18 percent over the following year, and then 8 percent per year indefinitely. The required return on this stock is 11 percent, and the stock currently sells for $65 per share. What is the projected dividend for the coming year?

Expert Solution

stock price=65

D0*((1+30%)/(1+11%)+((1+30%)*(1+30%))/(1+11%)^2+((1+30%)*(1+30%)*(1+30%))/(1+11%)^3+((1+30%)*(1+30%)*(1+30%)*(1+18%))/(1+11%)^4+(((1+30%)*(1+30%)*(1+30%)*(1+18%)*(1+8%))/(11%-8%))/(1+11%)^4)=65

D0=65/((1+30%)/(1+11%)+((1+30%)*(1+30%))/(1+11%)^2+((1+30%)*(1+30%)*(1+30%))/(1+11%)^3+((1+30%)*(1+30%)*(1+30%)*(1+18%))/(1+11%)^4+(((1+30%)*(1+30%)*(1+30%)*(1+18%)*(1+8%))/(11%-8%))/(1+11%)^4)

=0.9653

the projected dividend for the coming year=0.9653*(1+30%)=1.25

jeff jeffy answered 2 years ago

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