Share Valuation.
Most companies pay half yearly dividends on their ordinary shares rather than annual dividends. Barring any unusual circumstances during the year, the
board raises, lowers or maintains the current dividend once a year, and then pays this dividend out in equal instalments to its shareholders.

a. Suppose a company currently pays a $2.40 annual dividend on its ordinary shares in a single annual instalment, and management plans on raising this
dividend by 6% per year indefinitely. If the required return on this share is 12%, what is the current share price?

b. Now suppose the company in part a actually pays its annual dividend in half yearly instalments; thus the company has just paid a $1.20 dividend per
share, as it has for the last half year. What is your value for the current share now? (Hint: find the equivalent end-of-year dividend for each year.)
Comment on whether you think this model of share valuation is appropriate. LO 1