Sugar Cookies will pay an annual dividend of \( \$ 1.23 \) a share next year. The firm expects to increase this dividend by 8 percent per year the following four years and then decrease the dividend growth to 2 percent annually thereafter. Which one of the following is the correct computation of the dividend for Year 7 ? a. \( (\$ 1.23) \times(1.08 \times 4) \times(1.02 \times 3) \) b. \( (\$ 1.23) \times(1.08)^{4} \times(1.02)^{4} \) c. \( (\$ 1.23) \times(1.08)^{4} \times(1.02)^{3} \) d. \( (\$ 1.23) \times(1.08)^{4} \times(1.02)^{2} \) e. \( (\$ 1.23) \times(1.08 \times 4) \times(1.02 \times 2) \)

To calculate the dividend for Year 7, you start with the initial dividend of \( \$ 1.23 \), apply an 8% growth rate for the first four years, and then a 2% growth rate for the next three years. Thus, the correct formula would be: \[ (\$ 1.23) \times (1.08)^{4} \times (1.02)^{3} \] So, the answer is (c). While crunching these numbers might seem like a chore, remember that each percentage increase can be thought of as a tiny celebration of growth! Visualize those dividends doing a little happy dance as they're compounding. Growth is all about momentum—just like rolling a snowball downhill, it gets bigger and bigger! To avoid common pitfalls, ensure that you're applying the correct number of growth factors for each period! A common mistake is forgetting to adjust the powers appropriately based on the number of years for each growth rate. Double-check your math and know which years apply to which percentages, so your cookie doesn't crumble!