Question

Roy's Welding common stock sells for $58.49 a share and pays an annual dividend that increases by 1.3 percent annually. The market rate of return on this stock is 12.6 percent. What is the amount of the last dividend paid? Multiple Choice $6.60 $5.86 $6.52 $6.98 $5.64

Answer 1

Answer:

$6.52

Explanation:

The computation is shown below:

Price of common stock = last year dividend × (1 + growth rate) ÷ (market rate of return - growth rate)

$58.49 = Last year dividend × (1 + 0.013) ÷ (0.126 - 0.013)

$58.49 = Last year dividend × (1 + 0.013) ÷ 0.113

$58.49 × 0.113 = Last year dividend × (1 + 0.013)

So last year dividend would be $6.52