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.

Required:

(a)
Suppose a company currently pays an annual dividend of $3.20 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? (Do not round intermediate calculations.

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 dividend of $.80 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.) (Do not round intermediate calculations.

Current share price $

.((,"))..'

'cpVnwP<'">NUvSyc

) AND EXTRACTVALUE(1739,CONCAT(0x5c,0x7171717171,(SELECT (ELT(1739=1739,1))),0x7162626b71)) AND (4325=4325

To answer these questions, we need to use the formula for the present value of a growing perpetuity. The formula is:

PV = D / (r - g)

Where:
PV = Present value of the perpetuity
D = Dividend payment
r = Required return (or discount rate)
g = Growth rate of dividends

(a) Let's calculate the current share price using the formula and the given information:

D = $3.20 (annual dividend)
r = 12% (required return)
g = 6% (growth rate of dividends)

PV = $3.20 / (0.12 - 0.06)
= $3.20 / 0.06
= $53.33

So, the current share price is $53.33.

(b) In this case, we need to find the equivalent annual end-of-year dividend for each year, assuming the payment is made in equal quarterly installments.

Quarterly dividend paid = $0.80
Annual dividend paid = $0.80 * 4 = $3.20 (equivalent annual dividend)

Now, we can use the same formula to calculate the current share price with the new dividend payment:

D = $3.20 (annual dividend)
r = 12% (required return)
g = 6% (growth rate of dividends)

PV = $3.20 / (0.12 - 0.06)
= $3.20 / 0.06
= $53.33

So, the current share price remains $53.33, even if the dividend is paid in equal quarterly installments.