Super-Thrift Pharmaceuticals Company traditionally pays an annual dividend equal to 50 percent of its earnings. Earnings this year are $30,000,000. The company has 15 million shares outstanding. Investors expect earnings to grow at a 5 percent annual rate in perpetuity, and they require a return of 12 percent on their shares.
a. What is Super-Thrift's current dividend per share? What is it expected to be next year?
b. Use the Gordon growth model (see Equation 5.6) to calculate SuperThrift's stock price today.
