Question

Teder Corporation stock currently sells for $110 per share. The market requires a 10 percent return on the firm's stock. Required : If the company maintains a constant 5 percent growth rate in dividends, what was the most recent dividend per share paid on the stock?

Answer 1

Solution:-

Using DDM ,

Share value= Dividend X (1+ growth rate) / (Required rate of return - Growth rate)

Where ,current price = $110

            growth rate = 5%

            Required rate of return = 10%

Substituting the values we get

            $110=Dividend*(1+0.05)/(0.10-0.05)

            Dividend= $110/21

                             =$5.24

Hence the last dividend paid was = $5.24

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