4. The firm D pays a current dividend of $2.00 Growth rate is 25% for the...

Question

Question

4. The firm D pays a current dividend of $2.00 Growth rate is 25% for the next three years growth then declines linearly over

Answer 1

Answer #1


a.)
Compund annual growth rate of earnings :

	$3.51/$1.00
	$3.51

FV $3.51 (n=4)	36.88%

b.)
Project Earnings for Next Year 1 :

E1 = E0(1+g)
$3.51(1+36.88%)
$ 4.80

c.)
D1 = E1 * Dividend payout ratio
$4.80*45%
$ 2.16

d.)
Ke = D1 / P0 + g

2.16 / 20 + 36.88%
10.8%+36.88%
47.68%

Answer 2

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