Question

The stock in Up-Towne Movers is selling for $48.20 per share. Investors have a required return of 11.2 percent and expect the dividends to grow at 3.6 percent indefinitely. What was the dividend the company just paid

Answer 1

Answer:

The dividend the company just paid is $3.53

Explanation:

The solution to the problem is given as follows.

$48.20 = D1/(.1120 − .0360)

$48.20= D1(0.076)

Making D1 the subject of formula we have.

D1 = $3.66

D0 = $3.66/(1 + .0360)

D0 = $3.53

Answer 2

Answer:

Dividend that has just been paid = $3.54

Explanation:

The price of a stock using the dividend valuation model is the present value of the the future dividend expected from the stock discounted at the required rate of return.

This model is represented as follows

D(1+g)/(r-g) = P

So we substitute the variables of Up-Towne Movers into the equation as follows

D×(1.036)/(0.112-0.036)=48.20

D×1.036/0.076  =   48.20  

D×1.036= 48.20× 0.076

D = (48.20 × 0.076)/ 1.036

D = $3.535

Dividend that has just been paid = $3.54