Question

PerfectlySoft Corp. is experiencing rapid growth. Dividends are expected to grow at 28 percent per year during the next three years, 12 percent over the following year, and then 4 percent per year thereafter indefinitely. The required return on this stock is 9.76 percent, and the stock currently sells for $68.81 per share. What is the projected dividend (in $) for the coming year? Answer to two decimals, carry intermediate calcs. to four decimals.

***please show steps how to get the number, i need to learn it instead of just copying the answer, thank you

Answer 1

i have done it in excel for simplicity. To learn it, please see the formula which i have used

Stock Price= D1 / (1+r)^1 + D2 / (1+r)^2 + D3 / (1+r)^3 + D4 / (1+r)^4 + ( D4*(1+g) / (r-g) ) / (1+r)^4)

We know that stock price is 68.81. So we need to back calculate the dividend amount so that, using the dividends and above formula, we should reach at the same value

you can use this by excel solver, goal seek or simply by copy pen also by changing the D0 values.

All the D1 to D4 values are derived from D0

D1 = D0 * (1.28)

D2 = D1 * (1.28)

D3 = D2 * (1.28)

D4 = D3 * (1.12)

Projected dividend for coming year is D1 = 2.52

LET ME KNOW IF YOU HAVE ANY DOUBTS.

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