Roy's Welding Supplies common stock sells for $38 a share and pays an annual dividend that increases by 3 percent annually.The market rate of return on this stock is 8.20 percent.What is the amount of the last dividend paid?

Question

Quizplus · Accepted Answer

The dividend discount model (DDM) can be used to find the last dividend paid: P = D0 * (1 + g) / (r - g). Solving for D0 gives D0 = P * (r - g) / (1 + g). Substituting the given values: D0 = $38 * (0.082 - 0.03) / (1 + 0.03) = $1.92.

Roy's Welding Supplies Common Stock Sells for $38 a Share