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Lamey Headstones increases its annual dividend by 1.5 percent annually. The stock sells for $28.40 a share at a required return of 14 percent. What is the amount of the last dividend (the most recent dividend - D0) this company paid?

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beritop1089

Answer:

$3.50

Explanation:

Use dividend discount model to solve this question;

[tex]P0 = \frac{D0(1+g)}{r-g}[/tex]

where P0 = Current price

D0 = most recent dividend

g = dividend growth rate

[tex]28.40 = \frac{D0(1.015)}{0.14-0.015} \\ \\ =28.40(0.125) =1.015 D0[/tex]

Divide both sides by 1.015 to solve for D0;

3.55 / 1.015 = D0

D0 = 3.498

Therefore, the last dividend was $3.50

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