Question

Blossom Corp. is a fast-growing company whose management expects it to grow at a rate of 22 percent over the next two years and then to slow to a growth rate of 16 percent for the following three years. If the last dividend paid by the company was $2.15.

What is the dividend for the 1st year? (Round answer to 3 decimal places, e.g. 15.250.)

D1

$enter a dollar amount of the dividend for the first year rounded to 3 decimal places

  

  

What is the dividend for the 2nd year? (Round answer to 3 decimal places, e.g. 15.250.)

D2

$enter a dollar amount of the dividend for the second year rounded to 3 decimal places

  

  

What is the dividend for the 3rd year? (Round answer to 3 decimal places, e.g. 15.250.)

D3

$enter a dollar amount of the dividend for the third year rounded to 3 decimal places

  

  

What is the dividend for the 4th year? (Round answer to 3 decimal places, e.g. 15.250.)

D4

$enter a dollar amount of the dividend for the fourth year rounded to 3 decimal places

  

  

What is the dividend for the 5th year? (Round answer to 3 decimal places, e.g. 15.250.)

D5

$enter a dollar amount of the dividend for the fifth year rounded to 3 decimal places

  

  

Compute the present value of these dividends if the required rate of return is 14 percent. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)

Present value

$enter the present value of these dividends rounded to 2 decimal places

Answer 1

D1 is computed as shown below:

= Current dividend x (1 + growth rate)

= $ 2.15 x 1.22

= $ 2.623

D2 is computed as shown below:

= Current dividend x (1 + growth rate)²

= $ 2.15 x 1.22²

= $ 3.20006 or $ 3.200 Approximately

D3 is computed as shown below:

= Current dividend x (1 + growth rate)² x (1 + growth rate after year 2)

= $ 2.15 x 1.22² x 1.16

= $ 3.7120696 or $ 3.712 Approximately

D4 is computed as shown below:

= Current dividend x (1 + growth rate)² x (1 + growth rate after year 2)²

= $ 2.15 x 1.22² x 1.16²

= $ 4.306000736 or $ 4.306 Approximately

D5 is computed as shown below:

= Current dividend x (1 + growth rate)² x (1 + growth rate after year 2)³

= $ 2.15 x 1.22² x 1.16³

= $ 4.994960854 or $ 4.995 Approximately

The present value is computed as shown below:

= $ 2.623 / 1.14 + $ 3.20006 / 1.14² + $ 3.7120696 / 1.14³ + $ 4.306000736 / 1.14⁴ + $ 4.994960854 / 1.14⁵

= $ 12.41 Approximately

Feel free to ask in case of any query relating to this question      

Feel free to ask in case of any query relating to this question