Tattletale News Corp. has been growing at a rate of 20% per year, and you expect
ID: 2743259 • Letter: T
Question
Tattletale News Corp. has been growing at a rate of 20% per year, and you expect this growth rate in earnings and dividends to continue for another 3 years.
If the last dividend paid was $10, what will the next dividend be? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
If the discount rate is 21% and the steady growth rate after 3 years is 2%, what should the stock price be today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
a.If the last dividend paid was $10, what will the next dividend be? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Explanation / Answer
Solution.
A.
Calculation of next dividend.
Formula = Current dividend x ( 1 + Growth rate )
= $10 x ( 1 + .20 )
= $12
B.
Fourth year dividend were $21.15
Stock price = $21.15 / 21% = $100.71
Year Dividend Growth Rate Growth New Dividend 1 10.0000 20.00% 2.0000 12.0000 2 12.0000 20.00% 2.4000 14.4000 3 14.4000 20.00% 2.8800 17.2800 4 17.2800 20.00% 3.4560 20.7360 5 20.7360 2.00% 0.4147 21.1507Related Questions
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