Question

Four years ago, Bling Diamond, Inc., paid a dividend of $1.85 per share. The company paid a dividend of $2.27 per share yesterday. Dividends will grow over the next five years at the same rate they grew over the last four years. Thereafter, dividends will grow at 7 percent per year.

  

What will the company’s cash dividend be in seven years?

Answer 1

Company's cash dividend in 7 years will be $ 3.36

Step-1:Calculation of dividend growth rate in last 4 years
A		=	P*(1+g)^n		Where,
2.27		=	1.85*(1+g)^4		A	Current dividend
1.227027		=	(1+g)^4		P	Dividend of 4 years ago
1.227027	^(1/4)	=	1+g		g	Dividend growth rate
1.052479		=	1+g		n	Years of time
0.052479		=	g
So, Growth rate of dividend over last 4 years is				5.25%
Step-2:Calculation of dividend in 7 years from now
D7		=	D0*(1+g1)^5*(1+g2)^2			Where,
		=	2.27*(1+0.0525)^5*(1+0.07)^2			D7	=	Dividend 7 years from today	=	?
		=	$       3.36			D0	=	Current dividend	=	$       2.27
						g1	=	Growth rate over next 5 years	=	5.25%
						g2	=	Growth rate 2 years therafter	=	7%