Gonzo Growth Corporation: Maximizing Dividend Returns

How can you calculate the dividends Gonzo Growth Corporation will pay in the next three years?

Based on the given information, how much will Gonzo pay in dividends for the first, second, and third years?

Dividends Calculation for the Next Three Years

In the first year, Gonzo Growth Corporation will not pay any dividends, leading to $0.00 in dividend payout. In the second year, they will pay $4.80 in dividends, and in the third year, they will pay $5.04 in dividends.

Explanation:

To calculate the dividends Gonzo Growth Corporation will pay in the next three years, we need to follow the given assumptions. In the first year, the earnings are expected to be $10.00 per share. Therefore, the dividend in year 1 (D1) is $0.00.

In the second year, the earnings are expected to grow by 20% to $12.00 per share. The dividend in year 2 (D2) is calculated as 40% of $12.00, resulting in $4.80.

From the third year onwards, the earnings are expected to grow at a rate of 5% per year. Assuming the earnings at the end of year 2 are $12.00, the earnings at the end of year 3 will be $12.60. The dividend in year 3 (D3) is calculated as 40% of $12.60, totaling $5.04.

By strategically planning dividend payouts, Gonzo aims to provide returns to its shareholders while ensuring sustainable growth for the company. Understanding the dividend payment schedule can help investors make informed decisions about their investments.