Calcuate D1, D2 and D3
Earning per share(EPS) Year 1 = $12 , Payout ratio = 40% in year 2 , 20% growth from Year 1 to 2 and After wards 5%
A) D1 = 0
D1 is the dividend at the end of year 1 and it is mentioned that Company is not going to pay dividend in year 1 and will pay 40% in year2. So D1 = 0
B) EPS 1= 12
EPS 2 = 12 x 1.20 = 14.40 [ 20% growth given in year 1 to 2]
D2 is the dividend i the end of year 2 and it is mentioned that company will pay 40% dividend.
D2 = 14.40 x 0.40 = 5.76
C) 5% growth afterwards fo D2.
D3 = 5.76 x 1.05 = 6.048
So here are all dividends = D1 =0, D2 = 5.76, D3 = 6.048
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