Question

A company common stock currently sells for $20.00 per share, the company expects to earn $2.80 per share next year (remember this is eps not dividends), its expected payout ratio is 25%, and its expected constant growth rate is 4%. a) calculate dividend expected next year, d1?

Answer 1

To calculate the expected dividend next year (d1), multiply the expected earnings per share (EPS) by the payout ratio. In this case, the expected EPS is $2.80 and the payout ratio is 25%. Therefore, the dividend expected next year (d1) is $0.70 per share.

Step-by-step explanation:

To calculate the expected dividend next year, we need to multiply the expected earnings per share (EPS) by the payout ratio. The payout ratio is the percentage of earnings that the company distributes as dividends to shareholders. In this case, the expected EPS is $2.80 and the payout ratio is 25%.

So, the dividend expected next year (d1) can be calculated as follows:

1. Dividend expected next year (d1) = Expected EPS × Payout Ratio
2. Dividend expected next year (d1) = $2.80 × 0.25
3. Dividend expected next year (d1) = $0.70

Therefore, the dividend expected next year (d1) is $0.70 per share.