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garlic galore inc just paid a quarterly dividend of 0 30 future dividends are forecastto grow at 1 per quarter forever if

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Garlic Galore, Inc. just paid a quarterly dividend of $0.30. Future dividends are forecastto grow at 1% per quarter, forever. If the firm's equity cost of capital is 12% EAR, whatshould be the price of one share of stock?

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Answer to a math question Garlic Galore, Inc. just paid a quarterly dividend of $0.30. Future dividends are forecastto grow at 1% per quarter, forever. If the firm's equity cost of capital is 12% EAR, whatshould be the price of one share of stock?

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Current quarterly dividend, D0 = $0.30, Growth rate in dividends, g = 1% = 0.01, Equity cost of capital, EAR = 12% Effective quarterly rate, r = (1 + EAR)^(1/m) - 1 Where, m = Number of quarters a year = 4 r = (1 + 12%)^(1/4) - 1 r = 0.0287373447 The price of one share of stock is given by: Price = D0 * (1 + g)/(r - g) Using the values from above, Price = 0.30 * (1 + 0.01)/(0.0287373447 - 0.01) Price = 0.303/(0.0187373447) Price = 16.170914548 Price = $16.17

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