P9.1 DPS Calculation Warr Corporation just paid a dividend of $1.50 a share (tha

Question

P9.1 DPS Calculation Warr Corporation just paid a dividend of $1.50 a share (thatis, D0=$1.50). The divdend is expected to grow 7% a yearfor the next 3 years and then at 5% a year thereafter. What is theexpected dividend per share for each of the next 5 years? P9.5 Corporate value model Smith Technologies is expected to generate $150 million infree cash flow next year, and FCF is expected to grow at a constantrate of 5% per year indefinitely. Smith has no debt or perferredstock, and its WACC is 10%. If Smith has 50 million shares of stockoutstanding, what is the stocks value per share? P9.1 DPS Calculation Warr Corporation just paid a dividend of $1.50 a share (thatis, D0=$1.50). The divdend is expected to grow 7% a yearfor the next 3 years and then at 5% a year thereafter. What is theexpected dividend per share for each of the next 5 years? P9.5 Corporate value model Smith Technologies is expected to generate $150 million infree cash flow next year, and FCF is expected to grow at a constantrate of 5% per year indefinitely. Smith has no debt or perferredstock, and its WACC is 10%. If Smith has 50 million shares of stockoutstanding, what is the stocks value per share?

Explanation / Answer

Dividend just paid(D0) = $1.50 3 years Dividend growth rate(g) = 7% After three years dividend growthrate = 5% CalculatingDividend Per Share for each of the next 5years: Dividend in 1styear = $1.50 * (1.07) = $1.605 Dividend in 2nd year= $1.605 * (1.07)= $1.72 Dividend in 3rdyear = $1.72 * (1.07)  = $1.84 Dividend in 4thyear = $1.84 * (1.05)  = $1.93 Dividend in 5thyear = $1.93 * (1.05)  = $2.03 Dividend just paid(D0) = $1.50 3 years Dividend growth rate(g) = 7% After three years dividend growthrate = 5% CalculatingDividend Per Share for each of the next 5years: Dividend in 1styear = $1.50 * (1.07) = $1.605 Dividend in 2nd year= $1.605 * (1.07)= $1.72 Dividend in 3rdyear = $1.72 * (1.07)  = $1.84 Dividend in 4thyear = $1.84 * (1.05)  = $1.93 Dividend in 5thyear = $1.93 * (1.05)  = $2.03

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