Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out in equal quarterly installments to its shareholders. a. Suppose a company currently pays an annual dividend of $410 on its common stock in a single annual installment, and management plans on raising this dividend by 4 percent per year indefinitely. If the required return on this stock is 14 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Now suppose the company in (a) actually pays its annual dividend in equal quarterly installments; thus, the company has just paid a dividend of $1.025 per share, as it has for the previous three quarters. What is your value for the current share price now? (Hint Find the equivalent annual end-of-year dividend for each year.) (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Current share price b. Current share price 42.64
Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out in equal quarterly installments to its shareholders. a. Suppose a company currently pays an annual dividend of $410 on its common stock in a single annual installment, and management plans on raising this dividend by 4 percent per year indefinitely. If the required return on this stock is 14 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Now suppose the company in (a) actually pays its annual dividend in equal quarterly installments; thus, the company has just paid a dividend of $1.025 per share, as it has for the previous three quarters. What is your value for the current share price now? (Hint Find the equivalent annual end-of-year dividend for each year.) (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Current share price b. Current share price 42.64
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 2P
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Transcribed Image Text:Most corporations pay quarterly dividends on their common stock rather than annual
dividends. Barring any unusual circumstances during the year, the board raises, lowers,
or maintains the current dividend once a year and then pays this dividend out in equal
quarterly installments to its shareholders.
a. Suppose a company currently pays an annual dividend of $410 on its common stock
in a single annual installment, and management plans on raising this dividend by 4
percent per year indefinitely. If the required return on this stock is 14 percent, what is
the current share price? (Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
b. Now suppose the company in (a) actually pays its annual dividend in equal quarterly
installments; thus, the company has just paid a dividend of $1.025 per share, as it has
for the previous three quarters. What is your value for the current share price now?
(Hint Find the equivalent annual end-of-year dividend for each year.) (Do not round
intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
a. Current share price
b. Current share price
42.64
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