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[Fundamentals of corporate finance] Could you let me know the middle calculation process for these formula? How can the blue result come out? Dividend Growth
[Fundamentals of corporate finance]
Could you let me know the middle calculation process for these formula? How can the blue result come out?
Dividend Growth The Hedless Corporation has just paid a dividend of $3 per share. The dividend of this company grows at a steady rate of 8 percent per year. Based on this information, what will the dividend be in five years? Here we have a $3 current amount that grows at 8 percent per year for five years. The future amount is thus: $3 x 1.085 = $3 x 1.4693 = $4.41 The dividend will therefore increase by $1.41 over the coming five years. If the dividend grows at a steady rate, then we have replaced the problem of forecasting an infinite number of future dividends with the problem of coming up with a single growth rate, a considerable simplification. In this case, if we take D to be the dividend just paid and g to be the constant growth rate, the value of a share of stock can be written as: D D D P. + (1 + R) (1 + R) (1 + R) + = + + D. (1 + g)' D. (1 + g) 0,1 + g) (1 + R)! (1 + R) (1 + R)! As long as the growth rate, g, is less than the discount rater, the present value of this series of cash flows can be written simply as: DX (1+) D P [8.3] R-8 R-8Step by Step Solution
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