The common stock of Energizer's pays an annual dividend that is expected to increase by 10% annually. The stock commands a market rate of return of 12% and sells for $60.50 a share. What is
The expected amount of the next dividend to be paid on Energizer's common stock?

Question

Quizplus · Accepted Answer

The expected amount of the next dividend can be calculated using the Gordon Growth Model (Dividend Discount Model). The formula is: Price = Dividend / (Rate of Return - Growth Rate). Rearranging for Dividend gives: Dividend = Price * (Rate of Return - Growth Rate). Substituting the given values: Dividend = $60.50 * (0.12 - 0.10) = $1.21.

The Common Stock of Energizer's Pays an Annual Dividend That