A company just paid a dividend of $2.87 per share. the dividend is expected to grow at 25 percent per year for the next five years. thereafter, the dividend growth rate is expected to be 6 percent per year into the foreseeable future. calculate the dividend expected to be paid 8 years from today (that is, at t = 8).

Question

Rebekah Burch

Business

13 November, 11:49

A company just paid a dividend of $2.87 per share. the dividend is expected to grow at 25 percent per year for the next five years. thereafter, the dividend growth rate is expected to be 6 percent per year into the foreseeable future. calculate the dividend expected to be paid 8 years from today (that is, at t = 8).

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Tobias Burton · Answer 1

At year 0, Dividend per share is $ 2.87

At year 1, Dividend per share is Div prev year * 1.25 or 2.87 * 1.25 = 3.5875

At year 2, Dividend per share is 3.5875 * 1.25 = 4.4844

At year 3, Dividend per share is = 4.4844 * 1.25 = 5.6055

At year 4, Dividend per share is = 5.6055 * 1.25 = 7.0068

At year 5, Dividend per share is = 7.0068 * 1.25 = 8.7585

At year 6, Dividend per share is = 8.7585 * 1.06 = 9.2841

At year 7, Dividend per share is = 9.2841 * 1.06 = 9.8411

At year 8, Dividend per share is = 99.8411 * 1.06 = 10.4316

Or using the equation D8 = 2.87 * (1.25) ^5 * 1.06^3 = 10.4316

Answer is 10.4316