Stock Valuation most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any

Question:

Stock Valuation 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 a $2.40 annual dividend 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’

b. Now suppose the company in (a) actually pays its annual dividend in equal quarterly installments; thus, the company has just paid a $.60 dividend 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.) Comment on whether you think this model of stock valuation is appropriate.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...