Question

Sandhill Corp. is a fast-growing company whose management expects it to grow at a rate of 29 percent over the next two years and then to slow to a growth rate of 12 percent for the following three years. If the last dividend paid by the company was $2.15.

What is the dividend for the 2nd year? (Round answer to 3 decimal places, e.g. 15.250.)

What is the dividend for the 3rd year? (Round answer to 3 decimal places, e.g. 15.250.)

What is the dividend for the 4th year? (Round answer to 3 decimal places, e.g. 15.250.)

What is the dividend for the 5th year? (Round answer to 3 decimal places, e.g. 15.250.)

Compute the present value of these dividends if the required rate of return is 14 percent. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)

Answer 1

Answer)

Given

Rate	= 29% for next 2 years
Rate	= 12% for next 3 years
Dividend	= $2.15

Dividend	Dividend x rate	Fina; Value
D2	$ 2.15 x 1.292	$3.577
D3	$ 2.15 x 1.292 x 1.12	$4.007
D4	$ 2.15 x 1.292 x 1.122	$4.488
D5	$ 2.15 x 1.292 x 1.123	$5.026

PRESENT VALUE =

D₂ / (1 + r)² + D₃ / (1 + r)³ + D₄ / (1 + r)⁴ + D₅/ (1 + r)⁵

= ($ 2.15 x 1.29²) / 1.14² + ($ 2.15 x 1.29² x 1.12) / 1.14³ + ($ 2.15 x 1.29² x 1.12² ) / 1.14⁴ + ($ 2.15 x 1.29² x 1.12³ ) / 1.14⁵

= $ 3.577/ 1.14² + $ 4.007 / 1.14³ + $ 4.488 / 1.14⁴ + $ 5.026 / 1.14⁵

⁼ 2.752 + 2.704 + 2.657 + 2.610

= $ 10.723  Approximately