Question

Secolo Corporation stock currently sells for $25 per share. The market requires a return of 10.4 percent on the firm's stock. If the company maintains a constant 3.2 percent growth rate in dividends, what was the most recent dividend per share paid on the stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) $ Dividend paid per share

Answer 1

This question requires application of constant growth dividend discount model, according to which

Po - Divi -9 Po = Price of Stock Divi = Estimated Dividends for Next Period r = Required Rate of Return 9 = Growth Rate

$25 = \frac{Div_1}{0.104 - 0.032}$

$Div_1 = 1.80$

Div0 * (1 + g) = Div1

Div0 * (1 + 3.2%) = $1.80

Div0 = $1.74