Reference no: EM132873601

AT&T paid its quarterly dividend in November 2020. AT&T has 1,000,000 Shares Outstanding and the Total Dividends paid was $500,000. The Net Income of AT&T is $1,000,000 and its Book Value of Equity is $10,000,000. The annual discount rate for AT&T is 24% (stated as an APR). You are asked to find AT&T's stock price according to the Dividend Discount Model. To do so, follow the steps bellow.

Question i) Calculate November's dividend per share of AT&T using the Total Dividends and the Shares Outstanding

Question ii) Calculate the Return on Equity (ROE) of AT&T using the Net Income and the Book Value of Equity

Question iii) Calculate the Retention and Payout Ratios of AT&T using the Net Income and Total Dividends

Question iv) Calculate the quarterly dividend growth rate of AT&T using the ROE and the Retention Ratio. Convert the annual discount rate into quarterly one. (The dividend growth rate you calculated is already expressed in quarterly terms).

Question v) Calculate next period's dividend per share using November's dividend per share and the quarterly dividend growth rate

Question vi) Calculate the price of AT&T according to the Dividend Discount Model assuming that the dividend payments of AT&T are a growing perpetuity.