Question

Goode Inc.'s stock has a required rate of return of 11%, and it sells for $114 per share. Goode's dividend is expected to grow at a constant rate of 3.5%. What is the next expected dividend, D1?

A.$9.05
B.$8.55
C.$7.55
D.$8.05
E.$9.55

Answer 1

To calculate the next expected dividend, we need to find the current dividend first using the required rate of return and stock price. Then, we can use the growth rate to calculate the next expected dividend.

Step-by-step explanation:

To calculate the next expected dividend, D1, we can use the Gordon Growth Model formula: D1 = D0 × (1 + g), where D0 is the current dividend, and g is the growth rate.

In this case, the current dividend is not provided. However, we can calculate it using the formula: D0 = D1 / (1 + r), where r is the required rate of return.

Since the required rate of return is 11% and the stock is selling for $114 per share, we can calculate the current dividend:

D0 = $114 / (1 + 0.11) = $114 / 1.11 = $102.70

Finally, we can calculate the next expected dividend:

D1 = $102.70 × (1 + 0.035) = $102.70 × 1.035 = $106.11

Therefore, the next expected dividend, D1, is $106.11.