Weisbro and Sons common stock sells for $54 a share and pays an annual dividend

Question

Weisbro and Sons common stock sells for $54 a share and pays an annual dividend that increases by 3.2 percent annually. The market rate of return on this stock is 10.90 percent. What is the amount of the last dividend paid by Weisbro and Sons?

$5.70

$4.00

$4.03

$1.67

$4.30   

Weisbro and Sons common stock sells for $54 a share and pays an annual dividend that increases by 3.2 percent annually. The market rate of return on this stock is 10.90 percent. What is the amount of the last dividend paid by Weisbro and Sons?

Explanation / Answer

Answer:

Calculation of last dividend paid :

As per dividend Growth formula :

Expected dividend = Current Price * (Required rate – Growth rate)

= 54 * (10.9% -3.2%)

= 54 * 7.7%

= $4.158

Last dividend   = Expected dividend / (1+ Growth rate )

=4.158 /(1+3.2%)

=4.158 /1.032

= $4.03

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