Question

Shares of the Samson Co. offer an expected total return of 12 percent. The dividend is increasing at a constant 3.25 percent per year. What is the value of the next dividend if the stock is selling at $28 a share?

Answer 1

Answer:

The value of the next dividend: 2.45

Explanation:

Given:

• Dividend growth rate g =  3.25= 0.0325
• P = $28
• Required rate of return r = 12% = 0.12

As we know that current price of the stock P =  $\frac{D}{r -g}$

So the value of the next dividend:

D = P(r-g)

= $28 (0.12 - 0.0325)

= $2.45

Hope it will find you well.

Answer 2

Answer:

The question is missing the below options:

$2.34

$2.10

$2.45

$2.78

$2.50

Next dividend is $2.45

Explanation:

The value of the next dividend can be computed using the price value formula which is given below:

Share price=next dividend/expected return-dividend growth rate

share price is $28

expected return is 12%

dividend growth rate is 3.25%

next dividend is the unknown

$28=next dividend/12%-3.25%

$28=next dividend/8.75%

by cross multiplication the equation becomes

$28*8.75%=next dividend

next dividend=$28*8.75%

next dividend =$2.45