Question

Gonzo Growth Corporation has never paid a dividend, and will not pay one in the next...

Gonzo Growth Corporation has never paid a dividend, and will not pay one in the next year. However, in exactly two years, it plans to begin paying a dividend equal to 40% of its earnings at that time (i.e, the earnings at the end of year 2). Gonzo’s earnings are expected to be $12.00 per share in the coming year, and it expects earnings to grow by 20% over the following year until the dividend is paid (i.e., from years 1 to 2). After it begins paying the dividend, Gonzo expects future growth to level off at 5% per year afterwards.  
Based on these assumptions, what dividends will Gonzo pay in the next three years?     
Note that you do not need to find the current stock price – all you have to calculate are the dividends D1, D2 and D3, to the nearest cent. Be sure to give your answer to only two decimal places (i.e. to the nearest cent).
[Also note: You will not get full credit if you get the timing wrong. D1 is the dollar amount that will be paid in dividends per share in year 1. It's not the first positive dividend amount that will ever be paid - it's the amount, whatever it is, that will be paid in that specific year. Timing matters.]

D1=____
D2=____
D3=____

Homework Answers

Answer #1

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

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
-Weston Corporation just paid a dividend of $3.25 a share (i.e., D0 = $3.25). The dividend...
-Weston Corporation just paid a dividend of $3.25 a share (i.e., D0 = $3.25). The dividend is expected to grow 12% 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? D1 , D2, D3, D4, D5 - Tresnan Brothers is expected to pay a $1.70 per share dividend at the end of the year (i.e., D1 = $1.70). The dividend is...
Weston Corporation just paid a dividend of $1.25 a share (i.e., D0 = $1.25). The dividend...
Weston Corporation just paid a dividend of $1.25 a share (i.e., D0 = $1.25). The dividend is expected to grow 12% a year for the next 3 years and then at 3% a year thereafter. What is the expected dividend per share for each of the next 5 years? Round your answers to two decimal places. D1= D2= D3= D4= D5=
Weston Corporation just paid a dividend of $3.75 a share (i.e., D0 = $3.75). The dividend...
Weston Corporation just paid a dividend of $3.75 a share (i.e., D0 = $3.75). The dividend is expected to grow 8% a year for the next 3 years and then at 3% a year thereafter. What is the expected dividend per share for each of the next 5 years? Round your answers to two decimal places. d1= d2= d3= d4= d5=
DPS CALCULATION Weston Corporation just paid a dividend of $1.5 a share (i.e., D0 = $1.5)....
DPS CALCULATION Weston Corporation just paid a dividend of $1.5 a share (i.e., D0 = $1.5). The dividend is expected to grow 10% 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. D1 = $ D2 = $ D3 = $ D4 = $ D5 = $
Ashworth Corp has just paid its annual dividend of $10.00. The company has announced an aggressive...
Ashworth Corp has just paid its annual dividend of $10.00. The company has announced an aggressive expansion plan. The plan requires investment for the next three years. The company decides to fund the three years of expansion by not paying a dividend for three years. The company will resume paying dividends in year 4 with a dividend of $12.00 per share. After this, the company will grow its dividends at a rate of 8.0% thereafter {D1 = D2 = D3...
Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid...
Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $1.25 yesterday. Bahnsen's dividend is expected to grow at 6% per year for the next 3 years. If you buy the stock, you plan to hold it for 3 years and then sell it. The appropriate discount rate is 11%. A. Find the expected dividend for each of the next 3 years; that is, calculate D1, D2, and D3. Note that...
Consider the stock of SLB Inc., a growth stock that will pay no dividend the next...
Consider the stock of SLB Inc., a growth stock that will pay no dividend the next year. Starting in year two, the company will pay a dividend of $3 and will increase it by 10% for the next three years. Afterwards, dividends will grow by 5% per year indefinitely. The stock has a required rate of return of 15%. Answer the following questions. (SHOW YOUR WORK. Correct answers with no formulas/calculations receive no credit) a) What is the value (price)...
Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid...
Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $2.00 yesterday. Bahnsen's dividend is expected to grow at 8% per year for the next 3 years. If you buy the stock, you plan to hold it for 3 years and then sell it. The appropriate discount rate is 10%. Find the expected dividend for each of the next 3 years; that is, calculate D1, D2, and D3. Note that D0...
To please be done in excel: XYZ Ltd. is expected to pay a dividend of $8.00...
To please be done in excel: XYZ Ltd. is expected to pay a dividend of $8.00 per share in the coming year and a $9.00 dividend in the year thereafter. Afterwards, the company is expected to maintain a constant 5 per cent growth rate in dividends forever. If the required return on the share is 10 per cent, what is the fair value of the share?
Jayhawk Co. just paid a dividend of $2 per share. They anticipate growth of 18% over...
Jayhawk Co. just paid a dividend of $2 per share. They anticipate growth of 18% over the next two years, then 13% the following year and then taper off to 6% per year thereafter. How much is the dividend at time 1 (D1)? How much is the dividend at time 2 (D2)? How much is the dividend at time 3 (D3)? If investors require 12% return on their investment in Jayhawk Co, what is the time-3 present value of all...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT