What Dividends Will Gonzo Growth Corporation Pay in the Next Three Years?
What dividends will Gonzo Growth Corporation pay in the next three years based on the given information?
To calculate the dividends Gonzo Growth Corporation will pay in the next three years, we need to consider the company's earnings growth and the dividend payout ratio. In the coming year (year 1), the company's earnings per share are expected to be $10.00. In year 2, the earnings are projected to grow by 20% until the dividend is paid. After that, the company expects future growth to stabilize at 2% per year. Based on these assumptions, we can calculate the dividends as follows:
Calculation of Dividends for Gonzo Growth Corporation
Year 2 (D2): The earnings at the end of year 2 will be $10.00 per share. The dividend payout ratio is 40%, so the dividend in year 2 will be 40% of $10.00, which is $4.00.
Year 3 (D3): The earnings at the end of year 2 will grow by 2% per year. Therefore, the earnings in year 3 will be $10.00 + ($10.00 * 0.02) = $10.20 per share. The dividend payout ratio is still 40%, so the dividend in year 3 will be 40% of $10.20, which is $4.08.
Therefore, Gonzo Growth Corporation will pay dividends of $0.00, $4.00, and $4.08 in the next three years, respectively.