Present value of dividends: Fresno Corp. is a fast-growing company that expects to grow at a rate of

QUESTION

Present value of dividends: Fresno Corp. is a fast-growing company that expects to grow at a rate of 30 percent over the next two years and then to slow to a growth rate of 18 percent for the following three years. If the last dividend paid by the company was $2.15, estimate the dividends for the next five years. Compute the present value of these dividends if the required rate of return is 14 percent.
Year Growth rate of dividends Expected dividend Present value factor @ 14% Present value of dividends 1 30% $2.80 0.8772 $2.45 2 30% $3.63 0.7695 $2.80 3

% $4.29 0.6750 $2.89 4 18% $5.06 0.5921 $3.00 5 18% $5.97 0.5194 $3.10 Present value of dividends $14.24

ANSWER:

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