Question

The stock in Up-Towne Movers is selling for $46.00 per share. Investors have a required return of 11.1 percent and expect the dividends to grow at 4.3 percent indefinitely. What was the dividend the company just paid

Answer 1

Answer:

From the calculation below Up-Towne Movers just paid a dividend of $3.13

Explanation:

The price of share=D1/r-g

The Do is the dividend just paid which is the unknown in the equation

g is the dividend growth rate of 4.3%

r is the required return of 11.1%

The share price is $46.00

$46=Do/(11.1%-4.3%)

46=Do/0.068

by cross-multiplication the equation becomes

$46*0.068 =Do

Do=$46*0.068

Do=$3.13

The dividend just paid by Up-Towne Movers is $3.13 as calculated above from the share price equation