Ask Question
17 August, 09:25

Indigo Ink Supply paid a dividend of $4.5 last year on its common stock. It is expected that this dividend will grow at a rate of 8% for the next five years. After that, the company will settle into a slower growth pattern and plans to pay dividends that will grow at a rate of 3.6% per year. Investors require a return of 11% on the stock. a. What will be the dividend paid out for the next six years?

+5
Answers (1)
  1. 17 August, 12:57
    0
    D1 = $4.86

    D2 = $5.25

    D3 = $5.67

    D4 = $6.12

    D5 = $6.61

    D6 = $6.85

    Explanation:

    Dividend paid by Indigo Ink Supply at year 0 = Do = $4.5

    Growth rate for the first five years = 8%

    Growth rate for the sixth year = 3.6%

    The dividend paid out for the next six years are,

    D1 = Do (1 + growth rate)

    D1 = $4.5 (1+8%) = $4.86

    D2 = $4.86 (1+8%) = $5.25

    D3 = $5.25 (1+8%) = $5.67

    D4 = $5.67 (1+8%) = $6.12

    D5 = $6.12 (1+8%) = $6.61

    D6 = $6.61 (1+3.6%) = $6.85
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Indigo Ink Supply paid a dividend of $4.5 last year on its common stock. It is expected that this dividend will grow at a rate of 8% for ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers