In Trinidad and Tobago some Public Companies may pay quarterly dividends on their common stock rather than annual dividends. The Board of Directors as dictated by cash flows can adjust or maintain the current dividend once a year or pays dividend based on quarterly installments to its shareholders.

a) Joe Giant PLC currently pays dividend of $4.88 on its common stock in one single annual installment. CEO of Joe’s, Mr. Jim Davis, plans on raising this dividend by 3.5% percent per year for the conceivable future. If the required return on this stock is 8.60 percent, what is the current share price? 

b) On the contrary if Joe Giant PLC pays its yearly dividend in equal quarterly installments, as it has for the previous three quarters; What is your value for the current share price now? 

c) Comment on whether you think this model of stock valuation is appropriate.

Answer rating: 100% (QA)

a Joe Giant PLC Given Current dividend D0 488 Dividend Growth rate g 35 pa Cost of equity k 86 As pe... View the full answer