Answer:
The present value of dividend to be paid at the end of year 1, year 2, and year 3 are $2.60, $2.95, and $2.84 respectively.
Explanation:
The end of the year dividend is $3 per share.
The dividend growth rate is 20%.
The discount rate is 15%.
PV of dividend to be paid at the end of year 1
= [tex]\frac{end\ of\ the\ year\ dividend}{(1+discount\ rate)^n}[/tex]
= [tex]\frac{3}{(1 + .15)^1}[/tex]
= [tex]\frac{3}{1.15}[/tex]
=$2.60
PV of dividend to be paid at the end of year 2
=[tex]\frac{end\ of\ the\ year\ dividend}{(1 + discount\ rate)^n}[/tex]
=[tex]\frac{3\times (1+.20)}{(1+.15)^2}[/tex]
=[tex]\frac{3.60}{1.322}[/tex]
=$2.72
PV of dividend to be paid at the end of year 3
=[tex]\frac{end\ of\ the\ year\ dividend}{(1 + discount\ rate)^n}[/tex]
=[tex]\frac{3\times (1+.20)^2}{(1+.15)^3}[/tex]
=[tex]\frac{4.32}{1.52}[/tex]
=$2.84
