The Board of Elm River Corp is in the process of determining the amount of the n

Question

The Board of Elm River Corp is in the process of determining the amount of the next dividend they will pay on the common stock. They believe it is in the best interests of all to have a next dividend that reflects the established growth rate. Using the following dividend history, compute the next dividend for the board. Realizing you are presenting a price , you must:
a. round the growth rate to decimals
b. round the next dividend to whole pennies.
2009 $1.64
2008 $1.55
2007 $1.42
2006 $1.30
2005 $1.10

Explanation / Answer

Dividend payment in 2005 = $1.10

Dividend payment in 2006 = $1.30

Dividend payment in 2007 = $1.42

Dividend payment in 2008 = $1.55

Dividend payment in 2009 = $1.64

Dividend growth rate (g) = [(2009 dividend payment – 2008 dividend payment) / 2008 dividend payment]

(a) Calculating Dividend growth rate (g):

Dividend growth rate (g) = [($1.64 - $1.55) / $1.55]

Dividend growth rate (g) = 0.0580645%

Dividend growth rat e (g) = 5.806%

(b) Calculating next dividend payment.

Dividend payment in 2010 = $1.64 (1+5.806%)

Dividend payment in 2010 = $1.64 (1.05806)

Dividend payment in 2010 = $1.735

Dividend payment in 2010 = $1.735

Dividend payment in 2004 = $3.81

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