question archive A company just paid a dividend to its common shareholders of $7
A company just paid a dividend to its common shareholders of $7
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A company just paid a dividend to its common shareholders of $7.50 per share, so
DIV0 = $7.50. A newly introduced product line is expected to increase dividends by
75% for the next (or upcoming) year followed by 40% during the year after next. Based
on these forecasted dividend growth rates, what will be the values of dividends for each
of the next two years (that is, find DIV1 and DIV2)?
a)Expected dividend at the end of Year 1 (DIV1) =
b) Expected dividend at the end of Year 2 (DIV2) =
Question 4 options)
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a.
The dividend at the end of year 1 is $13.125.
b.
The dividend at the end of year 2 is $18.375.
Step-by-step explanation
a.
Compute the dividend at the end of year 1, using the equation as shown below:
Dividend = Current dividend*(1 + Growth rate)
= $7.50*(1 + 0.75)
= $13.125
Hence, the dividend at the end of year 1 is $13.125.
b.
Compute the dividend at the end of year 2, using the equation as shown below:
Dividend = Year 1 dividend*(1 + Growth rate)
= $13.125*(1 + 0.40)
= $18.375
Hence, the dividend at the end of year 2 is $18.375.
