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 $2.80 on its common stock in a single annual installment, and management plans on raising this dividend by 6 percent per year indefinitely. If the required return on this stock is 12 percent, what is the current share price

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08-10-2021
Business

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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 $2.80 on its common stock in a single annual installment, and management plans on raising this dividend by 6 percent per year indefinitely. If the required return on this stock is 12 percent, what is the current share price

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abiolataiwo2015 abiolataiwo2015 · Answer 1 · 2021-10-22T12:29:26+02:00

Suppose a company currently pays an annual dividend of $2.80 on its common stock in a single annual installment, and management plans on raising this dividend by 6 percent per year indefinitely. If the required return on this stock is 12 percent, what the current share price will be is : $49.47

Using this formula

P0 = [D0 × (1 + g)] / [r - g]

Where:

P0 = Current share price

D0=Annual dividend

g=growth

r=Required return

Let plug in the formula

P0= [$2.80 × (1 + 0.06)] / [0.12 - 0.06]

P0= [$2.80 × (1.06)] / [0.06]

P0= $2.968 / 0.06

P0= $49.47

Inconclusion suppose a company currently pays an annual dividend of $2.80 on its common stock in a single annual installment, and management plans on raising this dividend by 6 percent per year indefinitely. If the required return on this stock is 12 percent, what the current share price will be is : $49.47

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