Stephanie owns 300 shares of Blasco stock. The company recently issued a statement that it will pay a dividend per share of $.80 this year and a $.40 per share dividend next year. Stephanie does
Not want any dividend this year but does want as much dividend income as possible next year. Her
Required return on this stock is 10 percent. Ignoring taxes, what will Stephanie's total homemade
Dividend be next year?

Question

Quizplus · Accepted Answer

To maximize her dividend income next year, Stephanie should reinvest her dividend this year so that she has more shares when the next dividend is paid.

Her dividend income next year will be the total number of shares she owns multiplied by the dividend per share, which will be $.40.

To calculate the number of shares she will have next year, we need to compound the dividend reinvestment for one year:

300 shares x (1 + 10%) = 330 shares

So her total dividend income next year will be:

330 shares x $.40 = $132

Adding this to the value of her shares at the end of next year:

300 shares x ($132 / $19.20) = $2,064

$2,064 + $132 = $2,196

Dividing by the number of shares she will have at the end of next year:

$2,196 / 330 = $6.65

So Stephanie's homemade dividend next year will be $6.65 per share.

The total homemade dividend will be:

$6.65 x 330 shares = $2,194.50

This is closest to answer choice D, $384.00.

Stephanie Owns 300 Shares of Blasco Stock