Caan Corporation will pay a quarterly dividend of $2.80 per share next quarter.
ID: 2822886 • Letter: C
Question
Caan Corporation will pay a quarterly dividend of $2.80 per share next quarter. The company pledges to increase its dividend by 1.00 percent per quarter indefinitely. If you require a return of 24.00 percent annually with quarterly compounding, how much will you pay for the company’s stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)
Caan Corporation will pay a quarterly dividend of $2.80 per share next quarter. The company pledges to increase its dividend by 1.00 percent per quarter indefinitely. If you require a return of 24.00 percent annually with quarterly compounding, how much will you pay for the company’s stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)
Explanation / Answer
Quarterly dividend = $2.80
Growth rate g = 1%
Annual required return = 24%
Quarterly required return = 24/4 = 6%
Stock price = D1 / ( R - g ) = $2.80 / ( 0.06 - 0.01) = $56