If a company paid a dividend of $0.40 last month and it is expected to grow at 7% for the next 6 years and then grow at 4% thereafter,the dividend expected in year 8 is ______.
A) $0.63
B) $0.65
C) $0.68
D) $0.69
E) $0.74

Question

Quizplus · Accepted Answer

To calculate the dividend in year 8, we need to first calculate the dividend in year 6 and then use that as the starting point for our growth calculation.

Dividend in year 6 = $0.40 * (1 + 0.07)^6 = $0.67

Now, we can use this as the starting point and apply the 4% growth rate to calculate the dividend in year 8:

Dividend in year 8 = $0.67 * (1 + 0.04)^2 = $0.72

The closest option is B) $0.65.

If a Company Paid a Dividend of $0