Question

weisbro and sons 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 weisbro and sons? question 15 options: $.88 $.80 $.87 $.77 $.84

Answer 1

The amount of the last dividend paid by Weisbro and Sons is (b) $0.80.

Step-by-step explanation:

We can determine the last dividend paid by Weisbro and Sons using the Gordon Growth Model, which calculates the present value of an infinite series of future dividends. The formula for the Gordon Growth Model is:

`\[P_0 = (D_0 * (1 + g))/(r - g)\]`

Where:

-
`\(P_0\)` is the current stock price,

-
`\(D_0\)` is the last dividend paid,

- gis the annual dividend growth rate, and

- r is the market rate of return.

In this case, the stock price
`(\(P_0\))` is $21, the market rate of return (r) is 9%, and the dividend growth rate (g) is 5%. We need to find
`\(D_0\)`, the last dividend paid. Rearranging the formula to solve for
`\(D_0\)`, we get:

`\[D_0 = (P_0 * (r - g))/((1 + g))\]`

Substituting the given values into the formula:

`\[D_0 = ($21 * (0.09 - 0.05))/((1 + 0.05))\]`

`\[D_0 = ($21 * 0.04)/(1.05)\]`

`\[D_0 ≈ ($0.84)/(1.05)\]`

`\[D_0 ≈ $0.80\]`

Therefore, the amount of the last dividend paid by Weisbro and Sons is (b)$0.80. The Gordon Growth Model helps investors understand the relationship between stock prices, dividends, and the required rate of return.