Question

Synovec Corp. is experiencing rapid growth. Dividends are expected to grow at 25 percent per year during the next three years, 15 percent over the following year, and then 6 percent per year, indefinitely. The required return on this stock is 12 percent and the stock currently sells for $94 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

$26.86

Step-by-step explanation:

Calculation to determine the projected dividend for the coming year

First step is to calculate the Dividend(D0)=

D0 = $94 * 0.12

Dividend(D0)= $11.28

Second step is to calculate the Expected Dividend growth rate for 3 years (D3) using this formula

Expected Dividend growth rate for 3 years (D3) =D0 (1+g)

Let plug in the formula

D3=$11.28* (1+0.25)^3

D3=$22.03125

Third step is to calculate Dividend in 4th year(D4

Dividend in 4th year(D4)=$22.03125 *1.15

D4 =$25.3359

Now let calculate the Dividend in 5th year(D5

Dividend in 5th year(D5)=$25.3359 * 1.06

Dividend in 5th year(D5)=$26.86

Therefore the Projected Dividend for the coming year will be $26.86