Pasqually Mineral Water, Inc., will pay a quarterly dividend per share of $1.20
ID: 2612971 • Letter: P
Question
Pasqually Mineral Water, Inc., will pay a quarterly dividend per share of $1.20 at the end of each of the next 12 quarters. Thereafter, the dividend will grow at a quarterly rate of 1.8 percent, forever. The appropriate rate of return on the stock is 12 percent, compounded quarterly.
Pasqually Mineral Water, Inc., will pay a quarterly dividend per share of $1.20 at the end of each of the next 12 quarters. Thereafter, the dividend will grow at a quarterly rate of 1.8 percent, forever. The appropriate rate of return on the stock is 12 percent, compounded quarterly.
Explanation / Answer
Dividend (D1) = 1.20
Growth in dividend (g) = 1.8%
Required rate of return (ke)= 12 %
Current Stock Price = D1/Ke-g
= 1.20/ 12 % - 1.8%
= 1.20/10.2% = $ 11.76