Final answer:
The current share price for Burkhardt Corp., which pays a constant dividend of $14.40 for the next six years with a required return of 12%, is calculated using the present value of an annuity formula, resulting in a share price of $59.20.
Step-by-step explanation:
To calculate the current share price of Burkhardt Corp., we need to discount the future dividends back to their present value. Since the dividends are constant for the next six years and then cease completely, we apply the formula for the present value of an annuity. The annual dividend is $14.40, the required return (or discount rate) is 12%, and the dividends are paid for six years.
The present value of an annuity can be calculated using the formula:
PV = Pmt x [(1 - (1 + r)⁻ⁿ) / r], where:
- PV is the present value of the annuity,
- Pmt is the annual payment (dividend in this case),
- r is the annual discount rate (required return), and
- n is the number of periods (years).
Applying the values, we have:
PV = $14.40 x [(1 - (1 + 0.12)⁻⁶) / 0.12]
PV = $14.40 x [(1 - (1 + 0.12)⁻⁶) / 0.12]
PV = $14.40 x [4.1114]
PV = $59.20
Therefore, the current share price for Burkhardt Corp. would be $59.20.