Problem 7-32 Stock Valuation [LO 1] 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 $4.60 on its common stock in a single annual installment, and management plans on raising this dividend by 7 percent per year, indefinitely. If the required return on this stock is 11 percent, what is the current share price? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g.. 32.16. b. Now suppose the company in part (a) actually pays its annual dividend in equal quarterly installments; thus, the company has just paid a dividend of $1.15 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.). Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a. Current share price
Problem 7-32 Stock Valuation [LO 1] 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 $4.60 on its common stock in a single annual installment, and management plans on raising this dividend by 7 percent per year, indefinitely. If the required return on this stock is 11 percent, what is the current share price? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g.. 32.16. b. Now suppose the company in part (a) actually pays its annual dividend in equal quarterly installments; thus, the company has just paid a dividend of $1.15 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.). Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a. Current share price
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
Related questions
Question
A 301.
![Problem 7-32 Stock Valuation [LO 1]
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 $4.60 on its common stock in a single annual installment, and
management plans on raising this dividend by 7 percent per year, indefinitely. If the required return on this stock is 11 percent, what
is the current share price?
Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g.. 32.16.
b. Now suppose the company in part (a) actually pays its annual dividend in equal quarterly installments; thus, the company has just
paid a dividend of $1.15 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.)
Note: 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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F86dc0830-c044-4720-892e-a14a32e9838d%2F9c0e87e8-5cf5-4aa4-a4b2-1d9129f34d7c%2Fmn057ml_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 7-32 Stock Valuation [LO 1]
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 $4.60 on its common stock in a single annual installment, and
management plans on raising this dividend by 7 percent per year, indefinitely. If the required return on this stock is 11 percent, what
is the current share price?
Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g.. 32.16.
b. Now suppose the company in part (a) actually pays its annual dividend in equal quarterly installments; thus, the company has just
paid a dividend of $1.15 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.)
Note: 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
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education