Question

Orkazana corporation is experiencing rapid growth. dividends are expected to grow at 26 percent per year during the next three years, 16 percent over the following year, and then 8 percent per year indefinitely. the required return on this stock is 15 percent, and the stock currently sells for $96 per share. what is the projected dividend for the coming year? (do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Without the current dividend amount (D0), it's impossible to calculate the projected dividend for the coming year for Orkazana Corporation. The Dividend Discount Model ordinarily would be used, with the growth rates and required return applied to determine the fair value.

Step-by-step explanation:

To calculate the projected dividend for the coming year for Orkazana Corporation, we need to use the Dividend Discount Model (DDM). This model accounts for the expected growth rates of dividends over various time periods and the stock's required return rate to estimate the fair value of its price, which is given to be $96 per share. Since the current stock price is based on the present value of all future dividends, we can rearrange the DDM equation to solve for the projected dividend in the coming year (D1).

However, the question as presented to us appears to be missing a critical piece of information: the current dividend (D0), which is necessary to calculate the projected dividend for the coming year using the given growth rates. Without this piece of information, it is not possible to provide a precise answer to the student's question.

If the current dividend (D0) were known, the calculation for the projected dividend for the coming year would simply be D0 multiplied by (1 + the growth rate for the first year), i.e., D1 = D0 * (1 + 0.26) for a 26% growth rate. From this, one could further calculate the dividends for the second and third years, and the continuing value beyond at the different growth rates specified.