Caan Corporation will pay a quarterly dividend of 250 per sh

Caan Corporation will pay a quarterly dividend of $2.50 per share next quarter. The company pledges to increase its dividend by 2.00 percent per quarter indefinitely. If you require a return of 24.80 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

Expected Next Quarter Dividend, D1 = $2.50
Growth Rate per quarter, g = 2.00%
Annual Required Return = 24.80%
Quarterly Required Return, r = 6.20%

Stock Price = D1 / (r - g)
Stock Price = $2.50 / (0.062 - 0.02)
Stock Price = $2.50 / 0.042
Stock Price = $59.52

So, current price per stock is $59.52