Question

Hardees' common stock sells for $21 a share and pays an annual dividend that increases by 5% annually. The market rate of return on this stock is 9%. What is the amount of the last dividend paid by Hardees? Assume the stock is in equilibrium

Answer 1

Answer:

The correct answer is $0.8.

Explanation:

According to the scenario, the given data are as follows:

Price of stock = $21

Market rate of return = 9%

Growth rate = 5%

So, we can calculate the last dividend paid by using following formula:

Price of stock = Last dividend × (1 + Growth rate ) ÷ (Rate of return - growth rate)

By putting the value, we get

$21 = Last dividend × ( 1 + 0.05 ) ÷ ( 0.09 - 0.05 )

$21 = Last dividend × 1.05 ÷ 0.04

Last dividend = $0.8