Problem:
Royal Corp. just paid an annual dividend of 3 dollars per share, this is based on a 40 percent divident payout ratio (3 dollars was 40 percent of total earnings per share). They expect that earnings will grow at a 3% rate, forever, and they don't expect that the dividend payout ratio will change. There are 200 million shares of common stock outstanding.
Required:
Question: What is the current price of the stock if market requires a 16% rate of return?
Note: Show all workings.