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Homework answers / question archive / Worldwide Inc
Worldwide Inc. has decided to acquire another firm by purchasing the firm's outstanding stock. Analysts forecast a period of 2 years of extraordinary growth of 23%, followed by 1 year of unusual growth of 10%, and finally a normal (sustainable) growth rate of 5.5% annually indefinitely. The last dividend was D0= $1.00 per share and the required return is 8.6%. What is D4 (i.e., the dividend expected at end of period 4)? Answer to 3 decimal places.
Computation of Dividend for Year 4 (D4):
Dividend for Year 4 (D4) = Current Dividend*(1+Extraordinary Growth)^2*(1+Unusual Growth Rate)*(1+Normal Growth)
= 1*(1+0.23)^2*(1+0.1)*(1+0.055)
Dividend for Year 4 (D4) = $1.756
