Question
The common stock of Acme Corporation pays semi-annual dividends on April 1 and October 1. As of January 1, the next dividend is estimated to
The common stock of Acme Corporation pays semi-annual dividends on April 1 and October 1. As of January 1, the next dividend is estimated to be 1.50 per share. The companys dividend payout is expected to increase by 4% each April 1. (The October 1 dividend each ear will be equal to the amount paid the prior April 1.)
Based on the dividend growth model of stock valuation, and using a valuation interest rate of 12% (an annual effective rate), what is a fair price per share for Acme stock as of January 1? (Assume 30day months) (without excel)
A. 37.50 B. 38.59 C. 38.73 D. 39.70 E. 40.84
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