Constant growth stock
Hello Everybody,
I'm stuck on this problem and I'd like to know if I'm on the right track.
For a constant growth stock, and assuming a growth rate of 10%, and a company is retaining 15% of those profits and paying shareholders an additional 6% (dividend growth rate) per year in dividends. The current dividend per share is $8.00, what would the value of the dividend be in five years.
My answer
A. Year 1 = 8.00 x 1.05= 8.40
Year 2 = 8.40 x 1.05 = 8.82
Year 3 = 8.82 x 1.05 = 9.26
Year 4 = 9.26 x 1.05 = 9.72
Year 5 = 9.72 x 1.05 = 10.21
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