a) Weston Corporation just paid a dividend of $3 a share (i.e., D0 = $3). The di

Question

a) Weston Corporation just paid a dividend of $3 a share (i.e., D0 = $3). The dividend is expected to grow 8% a year for the next 3 years and then at 5% a year thereafter. What is the expected dividend per share for each of the next 5 years? Round your answers to two decimal places.

b) Tresnan Brothers is expected to pay a $2 per share dividend at the end of the year (i.e., D1 = $2). The dividend is expected to grow at a constant rate of 3% a year. The required rate of return on the stock, rs, is 10%. What is the stock's current value per share? Round your answer to two decimal places.

Explanation / Answer

a.

b.

Current price=D1/(Required return-Growth rate)

=2/(0.1-0.03)

which is equal to

=$28.57(Approx).

Year Dividend 1 (3*1.08)=$3.24 2 (3.24*1.08)=$3.50(Approx) 3 (3.4992*1.08)=$3.78(Approx) 4 (3.779136*1.05)=$3.97(Approx) 5 (3.9680928*1.05)=$4.17(Approx).

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