Thursday, 31 July 2014

Gontier Corporation stock currently sells for $64.58 per share. The market requires a return of 10 percent on the firm’s stock.

Gontier Corporation stock currently sells for $64.58 per share. The market requires a return of 10 percent on the firm’s stock.

Required:
If the company maintains a constant 5.75 percent growth rate in dividends, what was the most recent dividend per share paid on the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

  Dividend per share  $  


Explanation:
We are given the stock price, the dividend growth rate, and the required return, and are asked to find the dividend. Using the constant dividend growth model, we get:
 
P0 = D0 (1 + g) / (Rg)
 
Solving this equation for the dividend gives us:
 
D0 = P0(Rg) / (1 + g)
D0 = $64.58(0.10 – 0.0575) / (1 + 0.0575)
D0 = $2.60