Question

Three Mile Industries just paid a dividend of $3.00 (i.e., D₀=$3.00 ). The dividend is expected to grow at 12% for the next two years, 10% for the following two years and 7% thereafter. What is the expected dividend per share for each of the next 5 years?

Answer 1

The expected dividends per share for Three Mile Industries over the next five years are calculated based on the respective growth rates for each period, resulting in approximately $3.36, $3.76, $4.14, $4.55, and $4.87 for each year respectively.

Step-by-step explanation:

The expected dividend per share for each of the next 5 years for Three Mile Industries, following a dividend growth model, can be calculated considering the different growth rates for each period:

• Year 1: D1 = D0 × (1 + g1) = $3.00 × (1 + 0.12) = $3.36
• Year 2: D2 = D1 × (1 + g1) = $3.36 × (1 + 0.12) = $3.76
• Year 3: D3 = D2 × (1 + g2) = $3.76 × (1 + 0.10) = $4.14
• Year 4: D4 = D3 × (1 + g2) = $4.14 × (1 + 0.10) = $4.55
• Year 5: D5 = D4 × (1 + g3) = $4.55 × (1 + 0.07) = $4.87

So, the expected dividends per share over the next 5 years are approximately $3.36, $3.76, $4.14, $4.55, and $4.87 respectively.