LLT Company’s stock is currently selling for $105 per share. LLT just paid its annual dividend, so the next one won’t be paid until one year from today.
a. If you required an annual rate of return of 15% on an investment in LLT’s common stock, what amount of annual dividends would LLT have to provide ad perpetuam with no growth?
b. Assume that the next annual dividend is expected to be $11.55, but it would then grow at a constant annual growth rate (indefinitely). If your required rate of return (discount rate) is still 15%, how large would the growth rate have to be in order to justify the current share price?