Morton Industries' common stock sells for $54. Dividends are expected to continue to grow at a rate of 8% annually. If Morton returns 13%, what was its most recent dividend?

Question

Quizplus · Accepted Answer

To calculate the dividend, we use the Gordon Growth Model:
Current Price = D / (r - g)
where D is the dividend, r is the required return, and g is the dividend growth rate.
Plugging in the given values we get,
$54 = D / (0.13 - 0.08)
D = $2.50 (rounded off to the nearest cent)
Therefore, the most recent dividend is $2.50 (Option B).

Morton Industries' Common Stock Sells for $54