The Board of Directors of Hospitality Corp. is meeting to decide on the company's fourth quarter dividend. For the first three quarters of the year dividends per share have been $0.30, $0.33, and $0.40. The company's stated policy is to provide shareholders with a total annual return of 30%. Given that the share price started the year at $25.00 and end the year at $30.00, what size dividend should the Board declare?

Question

Quizplus · Accepted Answer

To achieve a total annual return of 30% on a starting share price of $25.00, the total return needed is $25.00 * 30% = $7.50 per share. The share price increased by $30.00 - $25.00 = $5.00. Thus, the total dividends needed to reach a 30% return are $7.50 - $5.00 = $2.50. The dividends paid in the first three quarters are $0.30 + $0.33 + $0.40 = $1.03. Therefore, the fourth quarter dividend needed is $2.50 - $1.03 = $0.47. Since $0.52 is the closest option, it is the correct answer.