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Otobai Motor Company just paid a dividend of $1.40. Analysts expect its dividend to grow at a rate of 18 percent for the next three years and then a constant rate of 5 percent thereafter. What is the expected dividend per share at the end of year 5?
a. $2.35.
b. $2.54.
c. $2.91.
d. $1.50.

Respuesta :

Answer:

b. $2.54.

Explanation:

The computation of the expected dividend per share at the end of year 5 is shown below:

= Dividend per share × (1 + growth rate)^number of years × (1 + growth rate)^remaining years left

= 1.40 × (1+18%)^3 × (1 + 5%)^2

= $2.54

hence, the expected dividend per share at the end of year 5 is $2.54

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