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Basic Question 7 of 16
Franks Co. is currently paying a dividend of $2.20 per share. The dividends are expected to grow at 25% per year for the next four years and then 5% per year thereafter. Calculate the expected dividend in year 6.
B. $2.95
C. $5.92
A. $5.37
B. $2.95
C. $5.92
User Contributed Comments 12
| User | Comment |
|---|---|
| haarlemmer | Nothing wrong with the question. I just found the calculator is not the best choice. Maybe someday it could be adopted to a new one, I really find it is not handy to use. |
| danlan | year 6 and not year 5, 1.05^2 and not 1.05, |
| gullan | Dividend in year 6 means dividend at the end of year 6 as dividend is paid at the end of period |
| sam95 | Keep on multipying the dividend by the growth rate for each year.AS it keeps on changing .i.e either try the given answer or simply try 2.2 x1.25 x1.25 x1.25 x1.25 x1.05 x1.05 =5.92 |
| capitalpirate | what's wrong with using the calculator?? |
| capitalpirate | 2.2 x 1.25^4 x 1.05^2 = 5.92 on TI, BAII, use 1.25 y^x 4 x 1.05 x^2... |
| moneyguy | 2.20 * (1.25)^4 * (1.05)^2 = 5.9216 |
| johntan1979 | 2.2 is Year 0 |
| jonan203 | HP12C: 2.2 <enter> 1.25 <enter> 4 <y^x><times> 1.05 <enter> 2 <y^x><times> = 5.9216 |
| davcer | save time, you just do the calculation 1.25exp*2.20 and get 5.37, since there are two periods left C is tne only possible answer |
| tochiejehu | D4[1.25]^[1.05]^2 |
| kseeba17 | Stop relying on the calculator, it barely saves any time and it doesn't help you understand the fundamentals better. Use a normal calculator... |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-equity models
calculate and interpret the intrinsic value of an equity security based on the Gordon (constant) growth dividend discount model or a two-stage dividend discount model, as appropriate
identify characteristics of companies for which the constant growth or a multistage dividend discount model is appropriate
explain advantages and disadvantages of each category of valuation model
CFA® 2024 Level I Curriculum, Volume 3, Module 8.