Question

The stock in Up-Towne Movers is selling for $46.00 per share. Investors have a required return of 11.1 percent and expect the dividends to grow at 4.3 percent indefinitely. What was the dividend the company just paid

Answer 1

To calculate the most recent dividend paid by Up-Towne Movers, we use the Dividend Discount Model formula adjusted for dividends. The calculation gives us $3.128 per share as the most recent dividend, assuming a stock price of $46.00, required return of 11.1%, and a growth rate of 4.3%.

Step-by-step explanation:

The question concerns the calculation of the dividend payment using the Gordon Growth Model (also known as the Dividend Discount Model). To find the dividend that Up-Towne Movers just paid, we can use the model's formula:

Price = Dividend / (Required Return - Growth Rate)

Rewritten to find the Dividend, the formula is:

Dividend = Price × (Required Return - Growth Rate)

Given that the stock price is $46.00, the required return is 11.1%, and the dividend growth rate is 4.3%, we can plug these values into the adjusted formula to calculate the most recent dividend payment:

Dividend = $46.00 × (0.111 - 0.043)


Dividend = $46.00 × 0.068


Dividend = $3.128 per share

The most recent dividend paid by Up-Towne Movers was $3.128 per share.

Answer 2

From the calculation below Up-Towne Movers just paid a dividend of $3.13

Step-by-step explanation:

The price of share=D1/r-g

The Do is the dividend just paid which is the unknown in the equation

g is the dividend growth rate of 4.3%

r is the required return of 11.1%

The share price is $46.00

$46=Do/(11.1%-4.3%)

46=Do/0.068

by cross-multiplication the equation becomes

$46*0.068 =Do

Do=$46*0.068

Do=$3.13

The dividend just paid by Up-Towne Movers is $3.13 as calculated above from the share price equation