(a) The ANZAC Corporation plans to be in business for 30 years. They announce that they will pay a dividend of $3.00 per share at the end of one year, and continue increasing the annual dividend by 4% per year until they liquidate the company at the end of 30 years. If you want to earn a rate of return of 12% by investing in their stock, how much should you pay for the stock?
(b) If the company was to announce that it would continue increasing the dividend at 4% per year forever, how much more would you be willing to pay for its stock, assuming your required rate of return is still 12%?

  • CreatedMay 08, 2014
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