Check my work 5 Synovec Corp. is experiencing rapid growth. Dividends are expect

Question

Check my work 5 Synovec Corp. is experiencing rapid growth. Dividends are expected to grow at 26 percent per year during the next three years, 16 percent over the following year, and then 9 percent per year indefinitely. The required return on this stock is 11 percent, and the stock currently sells for $90 per share. What is the projected dividend for the coming year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 2 points Projected dividend $ eBook

Explanation / Answer

Current price of stock is the present value of dividends. Suppose last dividend is $ 1. Step-1:Calcualtion of present value of dividend of next four years Year Dividend Discount factor@11% Present value 1 $    1.260 0.9009 $    1.135 2 $    1.588 0.8116 $    1.289 3 $    2.000 0.7312 $    1.463 4 $    2.520 0.6587 $    1.660 Total $    5.547 Step-2:Calculation of present value of dividend after year 4 Present value = (D4*(1+g)/(Ke-g))*DF4 Where, = (2.520*(1+0.09)/(0.11-0.09))*0.6587 D4 Year 4 dividend $    2.520 = $ 90.466 g growth rate 9% Ke Required rate of return 11% DF4 Discount factor of Year 4 0.6587 Step-3:Calculation of present value of all dividend Present value of all dividend = $    5.547 + $ 90.466 = $ 96.012 Step-4:Calculation of last dividend paid Price of stock is the present value of all future dividends. As per question, Current Price = $          90 We assumed in the beginning last dividend is $ 1. So, last dividend = $          90 / $ 96.012 = $       0.94 Step-5:Calculation of dividend of coming year Dividend of coming year = Last dividend * (1+Growth rate) = $       0.94 *(1+0.26) = $       1.18 Thus, Dividend of coming year is $ 1.18

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