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Michigan Co. just paid a dividend of $2 per share. Analysts expect future dividends to grow at 20% per year for the next 4 years and then grow at 6% per year thereafter. Calculate the expected dividend in year 5.

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abiolataiwo2015

Answer:

4.40

Explanation:

Calculation to determine the expected dividend in year 5

Using this formula

DIV6=(Dividend)(1+Expected future dividend growth rate)^n(1+Expected future dividend growth rate thereafter)

Let plug in the formula

DIV6=(2.00)(1+.20)^4(1+.06)

DIV6=(2.00)(1.20)^4(1.06)

DIV6=4.40

Therefore the expected dividend in year 5 will be 4.40

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