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Briley, Inc, is expected to pay equal dividends at the end of each of the next two years
Briley, Inc, is expected to pay equal dividends at the end of each of the next two years. Thereafter, the dividend will grow at a constant annual rate of 5.9 percent, forever. The current stock price is $64. What is next year's dividend payment if the required rate of return is 12 percent? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16)) Dividend payment $
Expert Solution
The dividend payment is computed as shown below:
Current Price = Dividend in year 1 / ( 1 + required rate of return)1 + Dividend in year 2 / ( 1 + required rate of return)2 + 1 / ( 1 + required rate of return)2 [ ( Dividend in year 2 (1 + growth rate) / ( required rate of return - growth rate) ]
$ 64 = D / 1.12 + D / 1.122 + 1 / 1.122 x [ (D x (1 + 0.059) / (0.12 - 0.059) ]
$ 64 = D x [ 1 / 1.12 + 1 / 1.122 + 1 / 1.122 x [ 17.36065574 ]
$ 64 = D x [ 0.892857143 + 18.36065574 / 1.122 ]
$ 64 = D x [ 0.892857143 + 14.63700234 ]
$ 64 = D x 15.52985949
D = $ 64 / 15.52985949
D = $ 4.12 Approximately
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