Asked by Julia Ibanez on Jul 07, 2024
Verified
Suppose the current dividend for a stock is $0.42 and is expected to grow 20% annually for the next three years and then 6% annually for the foreseeable future. What will the dividend be four years from today?
A) $0.42
B) $0.77
C) $0.73
D) cannot determine without a discount rate
Annual Discount Rate
The interest rate used in discounted cash flow analysis to calculate the present value of future cash flows.
Annual Growth
The year-over-year increase, usually presented as a percentage, in a particular metric such as revenue, earnings, or assets.
- Acquire knowledge of growth methodologies and assess stock values during varied phases of growth.
Verified Answer
KM
Kèvîñ MártîñézJul 14, 2024
Final Answer :
B
Explanation :
The dividend grows 20% annually for the first three years, so we calculate the growth as follows: Year 1: $0.42 * 1.20 = $0.504 Year 2: $0.504 * 1.20 = $0.6048 Year 3: $0.6048 * 1.20 = $0.72576 Then, it grows 6% for the next year (fourth year), so: Year 4: $0.72576 * 1.06 = $0.7693056, which rounds to $0.77.
Learning Objectives
- Acquire knowledge of growth methodologies and assess stock values during varied phases of growth.