Question

# -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 expected to grow at a constant rate of 9% a year. The required rate of return on the stock, rs, is 15%. What is the stock's current value per share?

a) We can calculate the expected dividend for next 5 years as follows

 Year Dividend (a) Growth Rate (b) Dividend for next year (a*b) 0 \$ 3.25 12% \$ 3.64 (D1) 1 \$ 3.64 12% \$ 4.08 (D2) 2 \$ 4.08 12% \$ 4.57 (D3) 3 \$ 4.57 5% \$ 4.80 (D4) 4 \$ 4.80 5% \$ 5.04 (D5) 5 \$ 5.04

b) We can calculate the current value of stock as follows:

= Expected Dividend / (Required return - Growth rate)

= 1.70 / (15% - 9%)

= 1.70 / 6%

= \$ 28.33

So, the current value of stock comes out to be \$ 28.33.

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