You are considering investing in Lotte Chemicals. Suppose Lotte Chemical is currently undergoing expansion and is not expected to change its cash dividend while expanding for the next 4 years. This means that it's current annual 2.50 dividend will remain for the next 4 years. After the expansion is completed, higher earnings are expected to result causing a 35% increase in dividends each year for 3 years. After these three years of 35% growth, the dividend growth rate is expected to be 5% per year forever. If the required return for Lotte Chemicals common stock is 17%, what is a share worth today?
Dividend Policy
A dividend is a part of the profit paid to the shareholder in an organization. The management of the organization has the right to decide the policy for giving a dividend from the earnings to the shareholder. However, an organization is not in the obligation to declare a dividend for the investor. Dividend policy differs from organization to organization. As the management has the only authority to decide dividend rate, dividend amount, and time of dividend payout by considering all other elements that create an impact on the payment of a dividend.
Stocks And Dividends
Stock or equities are generally sold and bought in the Stock Exchange or which is popularly known as the stock market. Stocks are issued in the Stock Exchange for the sole purpose of raising funds for the Corporation or the company itself. Now since an individual has purchased a portion of the Corporation or company, he or she may claim to be a part of the earnings or profit of the company.
You are considering investing in Lotte Chemicals. Suppose Lotte Chemical is currently undergoing expansion and is not expected to change its cash dividend while expanding for the next 4 years. This means that it's current annual 2.50 dividend will remain for the next 4 years. After the expansion is completed, higher earnings are expected to result causing a 35% increase in dividends each year for 3 years. After these three years of 35% growth, the
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