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Alex Inc has common stock currently trading at $15. The required rate of return is 13%...

Alex Inc has common stock currently trading at $15. The required rate of return is 13% and the dividends have been growing at 4% and are expected to continue growing at that rate. What is the current dividend?

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Answer #1

Required return=(D1/Current price)+Growth rate

0.13=(D1/15)+0.04

D1=(0.13-0.04)*15

=$1.35

Hence current dividend=D1*Present value of discounting factor(rate%,time period)

=$1.35/1.04

=$1.30(Approx).

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