Question

Lamey Headstones increases its annual dividend by 1.5 percent annually. The stock sells for $28.40 a share at a required return of 14 percent. What is the amount of the last dividend (the most recent dividend - D0) this company paid?

Answer 1

$3.50

Step-by-step explanation:

Use dividend discount model to solve this question;

`P0 = (D0(1+g))/(r-g)`

where P0 = Current price

D0 = most recent dividend

g = dividend growth rate

`28.40 = (D0(1.015))/(0.14-0.015) \\ \\ =28.40(0.125) =1.015 D0`

Divide both sides by 1.015 to solve for D0;

3.55 / 1.015 = D0

D0 = 3.498

Therefore, the last dividend was $3.50