Most corporations pay quarterly dividends on their common stock rather than annualdividends. 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 equalquarterly installments to its shareholders.a. Suppose a company currently pays an annual dividend of $410 on its common stockin a single annual installment, and management plans on raising this dividend by 4percent per year indefinitely. If the required return on this stock is 14 percent, what isthe current share price? (Do not round intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.)b. Now suppose the company in (a) actually pays its annual dividend in equal quarterlyinstallments; thus, the company has just paid a dividend of $1.025 per share, as it hasfor 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 roundintermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)a. Current share priceb. Current share price42.64

Part (a)D0 = $4.10; Ke = 14%; Dividend growth rate = g = 4%D1 = D0 x (1 + g) = 4.10 x (1 + 4%) =…

Answered: Most corporations pay quarterly…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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House of Haddock has 5,060 shares outstanding and the stock price is $146. The company is expected to pay a dividend of $26 per share next year and thereafter the dividend is expected to grow indefinitely by 3% a year. The president, George Mullet, now makes a surprise announcement: He says that the company will henceforth distribute half the cash in the form of dividends and the remainder will be used to repurchase stock. The repurchased stock will not be entitled to the dividend. a-1. What is the total value of the company before the announcement? a-2. What is the total value of the company after the announcement? a-3. What is the value of one share? b. What is the expected stream of dividends per share for an investor who plans to retain his shares rather than sell them back to the company? Check your estimate of share value by discounting this stream of dividends per share. Complete this question by entering your answers in the tabs below. Req A1 to A3 Req B a-1. What is the total…
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