Question

9. Warr Corporation just paid a dividend of $1.50 a share (that is, Do=$1.50). The dividend expected to grow 7% a year for the next 3 years and then at 5% a year thereafter. What is the expected dividend per share for each of the next 5 years?

PLEASE SHOW EXPLANATION, WORK, AND EQUATIONS

Answer 1

D0 : $ 1.50

Since the growth rate for next 3 year is 7%

Therefore,

D1 : $ 1.50 ( 1+ growth rate)¹ = $ 1.50(1+0.07) = $1.60

D2 : $ 1.50 ( 1+ growth rate)² = $ 1.50(1+0.07)² = $1.71

D3 : $ 1.50 ( 1+ growth rate)³ = $ 1.50(1+0.07)³ = $1.83

After 3 year the growth rate will become 5 %, hence;

D4 : $ 1.83 ( 1 + Growth Rate) = $1.83 (1+0.05) = $ 1.92

D5 : $ 1.83 ( 1 + Growth Rate)² = $1.83 (1+0.05)² = $ 2.01