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 dividend per share for the next 5 years is $3.24, $3.50, $3.78, $3.93, and $3.93 respectively.

Step-by-step explanation:

To calculate the expected dividend per share for each of the next 5 years, we need to consider the dividend growth rate and the number of years. In this case, the dividend is expected to grow 8% a year for the next 3 years and then at 4% a year thereafter. Let's calculate the expected dividend per share:

1. Year 1: D1 = D0 × (1 + growth rate) = $3 × (1 + 0.08) = $3.24
2. Year 2: D2 = D1 × (1 + growth rate) = $3.24 × (1 + 0.08) = $3.50
3. Year 3: D3 = D2 × (1 + growth rate) = $3.50 × (1 + 0.08) = $3.78
4. Year 4 and onwards: D4 = D3 × (1 + growth rate) = $3.78 × (1 + 0.04) = $3.93