Transcribed Image Text
Most corporations pay quarterly dividends on their common stockrather than annual dividends. Barring any unusual circumstancesduring the year, the board raises, lowers, or maintains the currentdividend once a year and then pays this dividend out in equalquarterly installments to its shareholders.a. Suppose a company currently pays an annualdividend of $5.00 on its common stock in a single annualinstallment, and management plans on raising this dividend by 6.25percent per year indefinitely. If the required return on this stockis 9 percent, what is the current share price? (Do notround intermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.) Current share price $b. Now suppose the company in part (a) actuallypays its annual dividend in equal quarterly installments; thus, thecompany has just paid a dividend of $1.25 per share, as it has forthe previous three quarters. What is your value for the currentshare price now? (Hint: Find the equivalent annualend-of-year dividend for each year.) (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.) Current share price $