Supernormal Growth Janicek Corp. is experiencing rapid growth. Dividends areexpe

Question

Supernormal Growth

Janicek Corp. is experiencing rapid growth. Dividends areexpected to grow at 32 percent per year during the next 3 years, 18percent over the following year, and then 3 percent per yearindefinitely. The required return on this stock is 10 percent, andthe stock currently sells for $50 per share. The projected dividendfor the coming year is $____________.

Supernormal Growth

Janicek Corp. is experiencing rapid growth. Dividends areexpected to grow at 32 percent per year during the next 3 years, 18percent over the following year, and then 3 percent per yearindefinitely. The required return on this stock is 10 percent, andthe stock currently sells for $50 per share. The projected dividendfor the coming year is $____________.

Explanation / Answer

Required return (R) = 10%

Current Price (P0) = $50 per share

Dividend Expected growth rate for 3 years = 32%

After 3 years the growth rate = 18%

After the 4th year the growth rate is indefinitely =3%

P0 = D/R

D = $50 * 0.10

Dividend (D0) = $5

Expected Dividend growth rate for 3 years (D3) =D0 (1+g)

                                                                     D3 = $5 * (1+0.32)3

Dividend in 4th year    (D4) = $11.49984 *1.18

                                       D4    =$13.5698112

Dividend in 5thyear (D5) = $13.5698112 * 1.03

                                         = $13.977

Projected Dividend for the coming year =$13.977

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.