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The Great Indoors sells carpet and floor coverings. The company will pay stockholders a $0.95 quarterly...

The Great Indoors sells carpet and floor coverings. The company will pay stockholders a $0.95 quarterly dividend later this afternoon. Investors anticipate that the company will increase this dividend by a constant 1.5% percent per quarter. If investors require a 16.00% annual return with quarterly compounding, what is the current stock price?

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Answer #1

Current stock price (Po) = D1 / (Re - g)

D1 = Next year dividend = $0.95

Re = 16% /4 = 4%

g = Growth Rate = 1.5%

Po = $0.95 / (4% - 1.5%)

= $0.95 / 2.5%

= $38.

Current stock price is $38.

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