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 an annual dividend of $4.00 on its common stock in a single annual installment, and management plans on raising this dividend by 5 percent per year indefinitely. if the required return on this stock is 15 percent, what is the current share price?

The DDM tells us that share price = D*(1+G)/R-G

Dividend = 4.00

G= 0.05

R= 0.15

Price = 4*(1.05)/0.15-0.05

Price= $42

Explanation:

We use the dividend discount method to estimate the current price. We use the growth rate and required return to figure out the current price by using the DDM formula.

$42

Explanation:

. Suppose a company currently pays an annual dividend of $4.00 on its common stock in a single annual installment, and management plans on raising this dividend by 5 percent per year indefinitely. If the required return on this stock is 15 percent, what is the current share price?

a)  dividend growth model, is given as

Price = D1 / (r - g) = D0 x (1 + g) / (r - g)

D0=Dividend, $4

g=percentage increase of the dividend

r=return on stock

= 4 x 1.05 / (15% - 5%)

= $42

Current share price will be  $42

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