Question

Buchi Manufacturing currently has a stock price of $59; its required return is 10%, and dividend yield 5.5%. What is the expected dividend to be paid next year?

Group of answer choices

$3.25

$4.62

$3.11

$4.80

$2.09

Answer 1

Current Price of the stock = Dividend for the next Year/ ( required ate of return- Growth rate) ------Equation 1

Dividend for the next Year = Current Dividend * (1+ growth rate) -----Equation 2

Dividend Yield= Dividend Per share/ Current Share Price --------Equation 3

According to question, solving for equation 3

5.5%= DPS/ $59

DPS= $3.25

Now solving for equation 1

$59= $3.25(1+g)/(.10-g)

solving for g= 4%

Now solving for equation 2

Dividend for next year = 3.25*(1+.04)

= approx $3.25