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Warr Corporation just paid a dividend of $1
Warr Corporation just paid a dividend of $1.5 a share. The dividend is expected to grow 18.30% 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 4 years?
Expert Solution
Current dividend of Warr Corporation, D0 = $1.5
The growth rate for the next three years, g1 = 18.3%
g1 = 0.183
The dividend in year 1, D1 = D0 * (1 + g1)
D1 = 1.5 * (1 + 0.183)
D1 = 1.5 * (1.183)
D1 = $1.7745
The dividend in year 2, D2 = D1 * (1 + g1)
D2 = 1.7745 * (1 + 0.183)
D2 = 1.7745 * (1.183)
D2 = $2.0992335
The dividend in year 3, D3 = D2 * (1 + g1)
D3 = 2.0992335 * (1 + 0.183)
D3 = 2.0992335 * (1.183)
D3 = $2.4833932305
The growth rate in from year 4 and beyond, g2 = 5%
g2 = 0.05
The dividend in year 4, D4 = D3 * (1 + g2)
D4 = 2.4833932305 * (1 + 0.05)
D4 = 2.4833932305 * (1.05)
D4 = $2.607562892
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