Synovec Corp. is experiencing rapid growth. Dividends are expected to grow at 25 percent per year during the next three years, 15 percent over the following year, and then 8 percent per year indefinitely. The required return on this stock is 14 percent, and the stock currently sells for $72 per share. What is the projected dividend for the coming year?

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Asked Dec 8, 2019
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Synovec Corp. is experiencing rapid growth. Dividends are expected to grow at 25 percent per year during the next three years, 15 percent over the following year, and then 8 percent per year indefinitely. The required return on this stock is 14 percent, and the stock currently sells for $72 per share. What is the projected dividend for the coming year?

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Expert Answer

Step 1

Calculation of Projected Dividends:

The projected dividends are $3.12.

Since there is no dividends provided here, it is necessary to calculate the dividends for the coming year where there is a different growth rate for each year. Since we have the stock price, required return and growth rate of dividends, it is necessary to calculate the dividends in year 3 which is shown below,

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D, - [D,×(!•8}] (1+§ Do × (1+ 25%) | =D, x(1.25)

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Step 2

Calculate the dividends for year 4 with a growth rate of 15% which is shown below:

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D.-[D, (1+ x}*«(1 + 8] -[D, x(1+ 25%) x(1+15%) =D, x (1.25)'x1.15

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Step 3

Calculate the price in year 4 where post year 4 the stock will grow by 8% ind...

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D,x(1+g) P. = re -g D,x (1.25)' x1.15х (1+8%) (14%– 8%) D, x1.953125x1.15×1.08 6% = D, x 40.429688

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