Yang Corp. is growing quickly. Dividends are expected to grow at a rate of 31 pe
ID: 2778282 • Letter: Y
Question
Yang Corp. is growing quickly. Dividends are expected to grow at a rate of 31 percent for the next three years, with the growth rate falling off to a constant 7.1 percent thereafter. The required return is 12 percent and the company just paid a $2.55 dividend.
What are the dividends each year for the next four years?
What is the share price in three years?
What is the current share price?
Yang Corp. is growing quickly. Dividends are expected to grow at a rate of 31 percent for the next three years, with the growth rate falling off to a constant 7.1 percent thereafter. The required return is 12 percent and the company just paid a $2.55 dividend.
What are the dividends each year for the next four years?
What is the share price in three years?
What is the current share price?
Explanation / Answer
a) Dividend for all 4 years are as under, calculating by the formulae Dt=D0(1+g)^t
year1= 3.34, year2=4.37, year3=5.73, Year4=6.13( Applying constant growth of 7.1% for 1 year)
b) Price at the end of 3 years
P3= D4/(ks-g)
=6.13/.12-.071
=125.29
c) Current Share price, Discount all dividends and Price at the end of 3 years
3.34/(1.12)+ 4.37(1.12)^2+5.73(1.12)^3+125.29/(1.12)^3
=100.41
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.