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Determining the annual dividend

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Today is Dec. 31, 2070, and Houston Tea Party, Inc. ("HTP") has just paid an annual dividend of $2 per share. The company's dividend in one year from today will increase by 5% and is expected to grow at the same rate each year thereafter. That is, the firm is expected to pay a dividend of $2.10 at the end of 2071 and its annual dividend will increase by 5% each year. The market requires 12% return on the investments similar to HTP's equity shares.

Suppose you were considering buying shares of HTP on Dec. 29, 2070, when the firm was about to pay an annual dividend of $2. All other assumptions remain unchanged. What would you have paid for when you bought shares of HTP on Dec. 29, 2070?

Reference no: EM133275289

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