Caan Corporation will pay a quarterly dividend of 220 per sh

Caan Corporation will pay a quarterly dividend of $2.20 per share next quarter. The company pledges to increase its dividend by 2.00 percent per quarter indefinitely. If you require a return of 28.00 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.)

Stock price

Solution

Annual required rate = 28% hence: Quarterly required rate = 28%/4 = 7%

Stock price today = Dividend next quarter / ( Required rate per quarter - Growth rate per quarter)

Stock price today = 2.2 / (7% - 2%)

Stock price today = $44.00