Grandiose Growth has a dividend growth rate of 10%. The discount rate is 8%. The end-of-year dividend will be $5 per share.
| a. |
What is the present value of the dividend to be paid in year 1? Year 2? Year 3? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
|
| Present Value | |
| Year 1 | $ |
| Year 2 | |
| Year 3 | |
| | |
Explanation:
a.
| DIV1 = $5.00 | PV = $5/1.08 = $4.63 |
| DIV2 = $5(1.10) = $5.50 | PV = $5.50/1.082 = $4.72 |
| DIV3 = $5(1.10)2 = $6.05 | PV = $6.05/1.083 = $4.80 |
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