Question

Apollo Utilities, Incorporated paid a dividend of $2.12 yesterday (D0 = $2.12). If this dividend is expected to grow at a constant rate of 6% per year for the next 10 years and shareholders of Apollo use a required rate of return of 11%, what will the expected dividend be in year 10 (D10 = ? )? (a) $ 6.02 (b) $ 3.79 (c) $42.40 (d) $ 3.45 (e) $44.94

Answer 1

(b) $ 3.79

Step-by-step explanation:

This can be calculated using the following simple formula:

Current dividend = (1 + Growth rate) × Previous dividend.

The formula in the following table:

Year 1 + Growth rate Previous dividend ($) Current Dividend ($)

0 - - 2.120

1 1.060 2.120 2.247

2 1.060 2.247 2.382

3 1.060 2.382 2.525

4 1.060 2.525 2.676

5 1.060 2.676 2.837

6 1.060 2.837 3.007

7 1.060 3.007 3.188

8 1.060 3.188 3.379

9 1.060 3.379 3.582

10 1.060 3.582 3.797

Therefore, D10 is equal to 3.797.