## Answers

Company's cash dividend in 7 years will be **$ 3.36**

Step-1:Calculation of dividend growth rate in last 4 years | ||||||||||

A | = | P*(1+g)^n | Where, | |||||||

2.27 | = | 1.85*(1+g)^4 | A | Current dividend | ||||||

1.227027 | = | (1+g)^4 | P | Dividend of 4 years ago | ||||||

1.227027 | ^(1/4) | = | 1+g | g | Dividend growth rate | |||||

1.052479 | = | 1+g | n | Years of time | ||||||

0.052479 | = | g | ||||||||

So, Growth rate of dividend over last 4 years is | 5.25% | |||||||||

Step-2:Calculation of dividend in 7 years from now | ||||||||||

D7 | = | D0*(1+g1)^5*(1+g2)^2 | Where, | |||||||

= | 2.27*(1+0.0525)^5*(1+0.07)^2 | D7 | = | Dividend 7 years from today | = | ? | ||||

= | $ 3.36 | D0 | = | Current dividend | = | $ 2.27 | ||||

g1 | = | Growth rate over next 5 years | = | 5.25% | ||||||

g2 | = | Growth rate 2 years therafter | = | 7% |

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