Question

Sheridan Corp. is a fast-growing company whose management expects it to grow at a rate of 26 percent over the next two years and then to slow to a growth rate of 20 percent for the following three years. If the last dividend paid by the company was $2.15.

a. What is the dividend for the 1st year? (Round answer to 3 decimal places, e.g. 15.250.)
b. What is the dividend for the 2nd year? (Round answer to 3 decimal places, e.g. 15.250.)
c. What is the dividend for the 3rd year? (Round answer to 3 decimal places, e.g. 15.250.)
d. What is the dividend for the 4th year? (Round answer to 3 decimal places, e.g. 15.250.)
e. What is the dividend for the 5th year? (Round answer to 3 decimal places, e.g. 15.250.)
f. Compute the present value of these dividends if the required rate of return is 14 percent. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)

Answer 1

Answer:

Year 1 dividend $2.709

Year 2 dividend $3.413

Year 3 dividend $4.096

Year 4 dividend $4.915

Year  5 dividend $5.898

The present value of the dividends is $ 13.74  as contained in the attached.

Explanation:

The dividend for the 1st year is calculated thus:

DIV1=DIV0*(1+r)

r is the growth rate

DIV1=$2.15*(1+0.26)

DIV1=$2.709

The dividend for the second year is calculated thus:

DIV2=$2.709 *(1+0.26)

DIV2=$3.413

The dividend for year 3 is calculated thus:

DIV3=$3.413*(1+0.2)

DIV3=$4.096

The dividend for year 4 is calculated thus:

DIV4=$4.096*(1+0.2)

DIV4=$4.915

The dividend for year 5 is computed thus:

DIV5=$4.915*(1+0.2)

DIV5=$5.898