Question

1. ABC Corporation is experiencing rapid growth. Dividends are expected to grow at 25% per year during the next three years, 15% over the following year and then 6% per year indefinitely. The required return on this stock is 9% and the stock currently sells for $79 per share. What is the projected dividend for the second year?  

please use excel

Answer 1

B C D E F G 0 3 4 $ 1.28 $ 1 1.60 $ 25% 2 2.00 $ 25% 2.50 $ 25% A 2743 ABC Corp 2744 Dividends 2745 2746 Terminal value 2747 Required return 2748 Net cash flows 2749 Price per share 2750 2.87 15% 101.48 $ 6% 9% $ 1.60 $ 2.00 $ 2.50$ 104.35 $79.00 Goal Seek Status ? 2751 Step 2752 2753 2754 2755 2756 Pause Goal Seeking with Cell B2749 found a solution. Target value: 79 Current value: $79.00 OK Cancel

Projected dividend for the second year = $ 2 per share

Formulae

B C E F G 0 4 D 1 =C2744*(1+D2745) 0.25 1 2 =D2744*(1+E2745) 0.25 =E2744*(1+F2745) 0.25 A 2743 ABC Corp 2744 Dividends 2745 2746 Terminal value 2747 Required return 2748 Net cash flows 2749 Price per share |=F2744*(1+G2745) 10.15 =G2744*(1+B2746)/(B2747-B2746) 0.06 0.09 =D2744+D2746 =E2744+E2746 =F2744+F2746 =G2744+G2746 =NPV(B2747,02748:G2748)