6. Goode Inc.’s stock has a required rate of return of 11.50%, and it sells for...
6. Goode Inc.’s stock has a required rate of return of 11.50%, and it sells for $25.00 per share. Goode’s dividend is expected to grow at a constant rate of 7.00%. What was the last dividend, D0? Please show all work and formulas used.
a. $0.95
b. $1.05
c. $1.16
d. $1.27
Homework Answers
Ans b. $1.05
| D1 = | Current Dividend |
| Ke = | Cost of Equity |
| g = | growth rate |
| P0 = | D1 / (Ke - g) |
| 25 = | D1 / (11.5% - 7%) |
| D1 = | 25 * 4.5% |
| D1 = | 1.125 |
| D1 = | D0 * (1 + g) |
| 1.125 = | D0 * ( 1 + 7%) |
| D0 = | 1.125 / 1.07 |
| D0 = | 1.05 |
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