Question

Weston Corporation just paid a dividend of $1.25 a share (i.e., D0 = $1.25). The dividend is expected to grow 8% a year for the next 3 years and then at 4% a year thereafter. What is the expected dividend per share for each of the next 5 years? Round your answers to two decimal places.

Answer 1

Dividen at year 5 = $1.70

Step-by-step explanation:

1.25 is the current dividen per share

In the next five years period:

it is expected to grow at 8% for three years

and at 4% the remaining two years

We will calculate like it was compounding interest:

`Principal \: (1+ r)^(time) = Amount`

In this case the principal are the dividen per share

and the rate is the grow for the period.

`1.25 (1+0.08)^(3) * (1+0.04)^(2) = Dividends_(year5)`

D year 5 = 1.703130624 = 1.70