Question

Synovec Corp. is experiencing rapid growth. Dividends are expected to grow at 26 percent per year during the next three years, 16 percent over the following year, and then 5 percent per year, indefinitely. The required return on this stock is 12 percent and the stock currently sells for $66 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.) Projected dividend

Answer 1

Step-1:Calculation of last paid dividend
As per dividend discount model, current share price is the present value of future dividends.
Present value of 4 years dividend:
Year	Dividend	Discount factor	Present value
a	b	c=1.12^-a	d=b*c
1	$       1.26	0.892857	$       1.13
2	$       1.59	0.797194	$       1.27
3	$       2.00	0.71178	$       1.42
4	$       2.32	0.635518	$       1.47
Total			$       5.29
Present value of dividend of 4 years thereafter	=	D4*(1+g)/(Ke-g)*DF4			Where,
	=	$    22.12			D4	=	$       2.32
					g	=	5%
					Ke	=	12%
					DF4	=	0.635518
Present value of all future dividends	=	$       5.29	+	$    22.12
	=	$    27.41
Last paid dividend	=	$    66.00	/	$    27.41
	=	$       2.41
Step-2:Dividend of next year
Dividend for the coming year	=	$       2.41	*	1.26
	=	$       3.03