Question

Weston Corporation just paid a dividend of $3 a share (i.e., D0 = $3). 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? Do not round intermediate calculations. Round your answers to the nearest cent.

Answer 1

The expected dividends per share for Weston Corporation for the next five years, starting with a dividend of $3, are $3.24, $3.50, $3.78, $3.93, and $4.09, after accounting for an 8% growth for the first three years and 4% thereafter.

Step-by-step explanation:

The question asks about calculating the expected dividends per share for Weston Corporation for each of the next five years, given an initial dividend and different growth rates for specific time frames. The initial dividend (D0) is $3, and it grows at 8% for the first three years and at 4% thereafter. We calculate the dividend for each year using the formula D1 = D0 × (1 + g), where g is the growth rate. To get the dividend for subsequent years, we use the result of the previous year as the base.

Expected dividends per share:

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• Year 1 (D1): 3.00 × (1 + 0.08) = $3.24
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• Year 2 (D2): 3.24 × (1 + 0.08) = $3.4992
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• Year 3 (D3): 3.4992 × (1 + 0.08) = $3.779136
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• Year 4 (D4): 3.779136 × (1 + 0.04) = $3.93038144
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• Year 5 (D5): 3.93038144 × (1 + 0.04) = $4.0879966976

Rounded to the nearest cent, the expected dividends per share for the next five years would be:

• 
  
• Year 1: $3.24
• 
  
• Year 2: $3.50
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• Year 3: $3.78
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• Year 4: $3.93
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• Year 5: $4.09