Momsen Corp. is experiencing rapid growth. Dividends are expected to grow at 30
ID: 2493274 • Letter: M
Question
Momsen Corp. is experiencing rapid growth. Dividends are expected to grow at 30 percent per year during the next three years, 20 percent over the following year, and then 5 percent per year indefinitely. The required return on this stock is 12 percent, and the stock currently sells for $80 per share. What is the projected dividend for the coming year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Momsen Corp. is experiencing rapid growth. Dividends are expected to grow at 30 percent per year during the next three years, 20 percent over the following year, and then 5 percent per year indefinitely. The required return on this stock is 12 percent, and the stock currently sells for $80 per share. What is the projected dividend for the coming year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Explanation / Answer
Let Dividend be D
Year
Cash Flow
PVF (12%)
PV of Cash Flow
1
D (130%) = 1.3D
0.8928
1.16064D
2
1.3D (130%) = 1.69D
0.7972
1.347268D
3
1.69D (130%) = 2.197D
0.7118
1.5638246D
4
2.197D(120%) = 2.6364D
0.6355
1.6754322D
4
2.6364D(105%) / (0.12-0.05) = 39.546
0.6355
25.131483D
30.8786478D
Stock Price = $80
Hence,
30.8786478D = 80
D = 2.59
Projected Dividend = $2.59
Year
Cash Flow
PVF (12%)
PV of Cash Flow
1
D (130%) = 1.3D
0.8928
1.16064D
2
1.3D (130%) = 1.69D
0.7972
1.347268D
3
1.69D (130%) = 2.197D
0.7118
1.5638246D
4
2.197D(120%) = 2.6364D
0.6355
1.6754322D
4
2.6364D(105%) / (0.12-0.05) = 39.546
0.6355
25.131483D
30.8786478D
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