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# Annual Dividend Per Share

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Suppose the dividend today, D0, is \$2.50, and the growth rate (g) is expected to be 25% for the next three years, followed by a normal growth rate (g) of 6% thereafter. Assume the investors require 13%, rs. Calculate the value of the stock today, P0. This is the supernormal growth problem.

USE appropriate symbols for each answer, that is, \$ and %, when necessary.
52 Week
Hi Lo Stock Sym Div Yld PE Vol Close Net Chg
22 16.50 A-gate ATG 1.08 ? 13 564 18.75 -.25

What is the annual dividend per share?
What did this stock close at yesterday?
Calculate the dividend yield.
What did the stock close at the day before yesterday? Calculate the earnings per share.

#### Solution Preview

Year Dividend
0 2.50
1 3.13
2 3.91
3 4.88

From year 4 onwards, the dividends would be growing at 6% per year indefinitely. This is a growing perpetuity, the present value of this is
given as Dividend/(ke-g)
Ke = cost of equity=13%, g= growth

PV in Year ...

#### Solution Summary

The solution calculates the value of the stock today summing investors require 13%. The annual dividend per share is given.

\$2.49