Otobai Motor Company just paid a dividend of $1.40. Analysts expect its dividend to grow at a rate of 18 percent for the next three years and then a constant rate of 5 percent thereafter. What is the expected dividend per share at the end of year 5?
A)$2.35
B)$2.54
C)$2.91
D)$1.50

Question

Quizplus · Accepted Answer

The expected dividend per share at the end of year 5 is $2.54. This is calculated by multiplying the current dividend of $1.40 by (1 + 18%)^3 * (1 + 5%)^2 = $2.54.

Otobai Motor Company Just Paid a Dividend of $1