Question

Martin Office Supplies paid a $6 dividend last year. The dividend is expected to grow at a constant rate of 7 percent over the

next four years. The required rate of return is 20 percent (this will also serve as the discount rate in this problem). Use Appendix
B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
a. Compute the anticipated value of the dividends for the next four years.
Anticipated Value
D1
D2
D3
D4

Answer 1

The anticipated value of the dividend in:

Year 1 is $45.86

Year 2 is $49.07.

Year 3 is $52.50.

Year 4 is $56.18.

What is the anticipated value of the dividend?

The formula that can be used to determine the value of the dividend is:

Value = dividend paid last year x (1 + growth rate^number of years) / (required return - growth rate)

D1 = ($6 x 1.07) / (20% - 7%) = $45.86

D2 = ($6 x 1.07²) / (20% - 7%) = $49.07

D3 = ($6 x 1.07³) / (20% - 7%) = $52.50

D4 = ($6 x 1.07^4) / (20% - 7%) = $56.18