Gonzo Growth Corporation has never paid a dividend, and will not pay one in the next...
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Gonzo Growth Corporation has never paid a dividend, and will not pay one in the next year. However, in exactly two years, it plans to begin paying a dividend equal to 40% of its earnings at that time (i.e, the earnings at the end of year 2). Gonzo's earnings are expected to be $10.00 per share in the coming year, and it expects earnings to grow by 20% over the following year until the dividend is paid (i.e., from years 1 to 2). After it begins paying the dividend, Gonzo expects future growth to level off at 2% per year afterwards. Based on these assumptions, what dividends will Gonzo pay in the next three years? Note that you do not need to find the current stock price - all you have to calculate are the dividends D1, D2 and D3, to the nearest cent. Be sure to give your answer to only two decimal places (i.e. to the nearest cent). [Also note: You will not get full credit if you get the timing wrong. D1 is the dollar amount that will be paid in dividends per share in year 1. It's not the first positive dividend amount that will ever be paid - it's the amount, whatever it is, that will be paid in that specific year. Timing matters.] D1 = D2 = D3 = Gonzo Growth Corporation has never paid a dividend, and will not pay one in the next year. However, in exactly two years, it plans to begin paying a dividend equal to 40% of its earnings at that time (i.e, the earnings at the end of year 2). Gonzo's earnings are expected to be $10.00 per share in the coming year, and it expects earnings to grow by 20% over the following year until the dividend is paid (i.e., from years 1 to 2). After it begins paying the dividend, Gonzo expects future growth to level off at 2% per year afterwards. Based on these assumptions, what dividends will Gonzo pay in the next three years? Note that you do not need to find the current stock price - all you have to calculate are the dividends D1, D2 and D3, to the nearest cent. Be sure to give your answer to only two decimal places (i.e. to the nearest cent). [Also note: You will not get full credit if you get the timing wrong. D1 is the dollar amount that will be paid in dividends per share in year 1. It's not the first positive dividend amount that will ever be paid - it's the amount, whatever it is, that will be paid in that specific year. Timing matters.] D1 = D2 = D3 =
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Here D1 is dividend paid at end of first year dividend will not pay in next year ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
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