Warr Corporation just paid a dividend of $3 a share (that is, D0 = $3). The dividend is expected to grow 9% a year for the next 3 years and then at 3% a year thereafter. What is the expected dividend per share for each of the next 5 years?

Expected dividend | Business & Finance homework help

The expected dividend per share for each of the next 5 years is as follows:

Year 1 (2020): $3.27
Year 2 (2021): $3.56
Year 3 (2022): $3.88
Year 4 (2023): $4.22
Year 5 (2024):$4.58

This calculation can be made using the two-stage dividend growth model, which assumes that the dividends will grow at different rates over a given period of time before settling into a long-term growth rate. The first stage, lasting three years in this case, involves calculating the expected dividend for each year of heightened growth by multiplying the current dividend ($3) by 1 plus the rate of growth for that year:

(1 + 0.09) x D0 = D1 = $3.27
< [For Year 1]
(1 + 0.09) x D1 = D2 = $3.56
[For Year 2]
(1 + 0.09) x D2 = D3 = $3..88
[For Year 3]

In the second stage, lasting two years in this case, we calculate future dividends by multiplying one plus a lower rate of growth to our most recent calculation above:

(1 + 0.03) x D0=D4=$4 .22
[For Year 4]
(1+0 .03 )xD4=D5=$4 .58
[For Year 5]