Question

NoMoreKidSongs Corp. paid a dividend last quarter of $6.75. It is expected to grow at 3% over the next year, 8%, the following year, and 12% the year after that. After this period of non-constant growth, the dividends are expected to grow at a constant rate of 1% indefinitely. What is the dividend paid in year 2 after the first two years of non-constant growth?

Answer 1

we need to compute the dividend to be paid on year 6th
year	Growth rate	dividend
0		6.7500
1	3%	6.9525
2	8%	7.5087
3	12%	8.4097
4	1%	8.4938
5	1%	8.5788
6	1%	8.6646
dividend paid in year 2 after the first two years of non-constant growth=	$     8.66