Note that price IN year 4 is based on the year 5 dividend, but price is known in year 4 and assumed a year 4 cash flow, so it's discounted 4 years, NOT 5.
76 = [1.30x/(1.10^1)] + [1.69x/(1.10^2)] + [2.197x/(1.10^3] + [2.6364x/(1.10^4] + [(2.794584x/(0.10 - 0.06)] / 1.10^4
the last part is the difference between JKRB's formula and mine...
I used: [(2.794584x/(0.10 - 0.06)] / 1.10^4... which is [ (D5 / (r - g) ] / (1 + r)^4
he used: [2.794584x/.05] X [1.10^-4]
I let Wolfram math do the math for me - plugged the formula into my search bar and clicked on the Wolfram results here:
http://www.wolframalpha.com/input/?i=76+...
x = 1.414
x would be the LAST dividend paid, "D0"
SO...the NEXT dividend "D1" = D0(1 + g)...where g is 30% (0.30) = 1.414(1.30) = $1.3832
Hope that helps...
Dividends are not tied to the price of a stock. Some stocks pay dividends some don't and the board of directors usually decide on what the dividend will be. Now since they do not tell you what he current dividend is I can't see you you can figure out a dollar amount. So unless I am missing something I can't see how you can answer this. But it has been a while since I was in college and I may be missing something.
I really need help on this finance homework. it's the only question I haven't been able to answer correctly! I understand how stocks are valued, but this question has me finding D1 which I can't get right for some reason. The question is as follows:
Frey Corp. is experiencing rapid growth. Dividends are expected to grow at 30 percent per year during the next three years, 20 percent over the following year, and then 6 percent per year indefinitely. The required return on this stock is 10 percent, and the stock currently sells for $76 per share. What is the projected dividend for the coming year?
Many thanks to the person who can help me solve this!
