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24 May, 03:50

Burton corp. is growing quickly. dividends are expected to grow at a rate of 31 percent for the next three years, with the growth rate falling off to a constant 6.1 percent thereafter. the required return is 12 percent and the company just paid a dividend of $2.80. what are the dividends each year for the next four years

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  1. 24 May, 06:50
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    Current year dividend (D0) = $2.80

    Dividend for the first year (D1) = $2.80*1.31 = $3.67

    Dividend for the second year (D2) = $2.80*1.31^2 = $4.81

    Dividend for the third year (D3) = $2.80*1.31^3 = $6.29

    Dividend for the fourth year (D4) = $2.80*1.06 = $6.67

    Price of the stock at the third year (P3) = $6.67 / (0.12-0.06) = $111.21

    Current Price of the dividend (P0) = $3.67/1.12 + $4.81/1.12^2 + $6.29/1.12^3 + $111.21/1.12^3

    Current Price of the dividend (P0) = $3.28 + $4.29 + $5.62 + $79.15

    Current Price of the dividend (P0) = $92.34
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