Question

DPS Calculation Weston Corporation just paid a dividend of $1.00 a share (i.e., ). 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?

Answer 1

Answer:

The correct answer for 1st year is $1.12, 2nd year is $1.25, 3rd year is $1.40, 4th year is $1.48 and 5th year is $1.55.

Explanation:

According to the scenario, the given data are as follows:

Dividend for beginning = $1.00

Growth rate for 3 year = 12%

For 4th and 5th year = 5%

So, we can calculate the dividend per share for each year by using following formula:

Dividend = Beginning dividend × (1 + Growth percentage)

So, by putting the value we get,

Dividend for 1st year = $1 × (1+12%)

= $1 × 1.12

= $1.12

Dividend for 2nd year = $1.12 × (1+12%)

= $1.12 × 1.12

= $1.25

Dividend for 3rd year = $1.25 × (1+12%)

= $1.25 × 1.12

= $1.40

Dividend for 4th year = $1.40 × (1+5%)

= $1.40 × 1.05

= $1.48

Dividend for 5th year = $1.48 × (1+5%)

= $1.48 × 1.05

= $1.55