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iragen [17]
3 years ago
13

Goode Inc.'s stock has a required rate of return of 13.50%, and it sells for $15.00 per share. Goode's dividend is expected to g

row at a constant rate of 7.50%. What was the last dividend, D0?
Business
1 answer:
Ray Of Light [21]3 years ago
6 0

Answer:

The last dividend = $0.84

Explanation:

We know,

Current stock price, P_{0} = D_{1} ÷ (r_{s} - g)

Given,

Market rate of return, r_{s} = 13.50% = 0.135

Growth rate, g = 7.50% = 0.075

Expected dividend, D_{1} = D_{0} × (1 + g)

Thus we have to determine D_{0} as it is the current year dividend or most recent dividend.

Current stock price, P_{0} = $15

Putting the values into the above formula, we can get,

$15 = [D_{0} × (1 + g)] ÷ [(r_{s} - g)]

or, $15 = [D_{0} × (1 + 0.075)] ÷ (0.135 - 0.075)

or, $15 = (D_{0} × 1.075) ÷ 0.06

or, $15 = D_{0} × 17.9167

or, D_{0} = $15 ÷ 17.9167

Therefore, the last dividend D_{0},  = $0.84

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