Question

Super-Thrift Pharmaceuticals Company traditionally pays an annual dividend equal to 50% of its earnings. Earnings this year are $30,000,000. The company has 15 million shares outstanding. Investors expect earnings to grow at a 5% annual rate in perpetuity, and they require a return of 12% on their shares.
a. What is Super-Thrift’s current dividend per share? What is it expected to be next year?
b. Use the Gordon growth model (see Equation 5.4) to calculate Super-Thrift’s stock price today.


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  • CreatedMarch 26, 2015
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