Super-Thrift Pharmaceuticals Company traditionally pays an annual divided equal

Question

Super-Thrift Pharmaceuticals Company traditionally pays an annual divided equal to 50% of its earnings. Earnings this year are $30 million. 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-Thrifts current dividend per share? What is it expected to be next year? B: Use the Gordon growth model (Equation 4.6 on page 134) to calculate Super-Thrift’s stock price today. Need Step by Step solution and formula so I can understand answers and work!

Explanation / Answer

Dividend = (30 million * 50%)/15 million i.e 1 per share

Dividend next year D1 = D0(1+G)

= 1 ( 1+0.05) i.e 1.05

Stock Price today (P0) = D1/Ke-G

= 1.05/(0.12-0.05)

= 1.05/0.07 i.e 15

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.