Question

Mobray Corp. is experiencing rapid growth. Dividends are expected to grow at 25 percent per year during the next three years, 15 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 $94 per share. What is the projected dividend for the coming year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Projected dividend for the coming year is $ 3.87

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	$       1.25	0.892857	$       1.12
2	$       1.56	0.797194	$       1.25
3	$       1.95	0.71178	$       1.39
4	$       2.25	0.635518	$       1.43
Total			$       5.18
Present value of dividend of 4 years thereafter	=	D4*(1+g)/(Ke-g)*DF4			Where,
	=	$    25.22			D4	=	$       2.25
					g	=	6%
					Ke	=	12%
					DF4	=	0.635518
Present value of all future dividends	=	$       5.18	+	$    25.22
	=	$    30.40
Last paid dividend	=	$    94.00	/	$    30.40
	=	$       3.09
Step-2:Dividend of next year
Dividend for the coming year	=	$       3.09	*	1.25
	=	$       3.87