Warr Corporation just paid a dividend of $3 a share (that is, D0 = $3). The dividend is expected to grow 9% a year for the next 3 years and then at 3% a year thereafter. What is the expected dividend per share for each of the next 5 years?

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Dividend per share expected for the 5 future years:

Year 1 (2021): $3.27
Year 2 (2021): $3.56
Year 3 (2022), $3.88
Year 4 (2023). $4.22
Year 5 (2024): $4.58

Calculations can be done using the model for two-stage growth, which is based on the assumption that dividends grow in different ways over time. First, multiply the dividends ($3) for three years by 1. Then add the annual growth rate.

1 + 0.09 x D0 = 3.27
< [For Year 1]
(D1 + D2) = 3.56
[For Year 2]
If D3 is equal to $3.88, then D2 x 1+0.09 = D3
[For Year 3]

We calculate the future dividends in the second step, lasting for two years. To do this, multiply one by a rate of decline from our previous calculation:

(D0 + D3 = $ 4.22)
[For Year 4]
(1+0 .03 )xD4=D5=$4 .58
[For Year 5]