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 $55.00 a share.What is the expected amount of the next dividend to be paid on Energizer's common stock?

Question

Quizplus · Accepted Answer

To estimate the next dividend to be paid, we need to apply the dividend growth rate to the current dividend.

Let D0 be the current dividend, and g be the expected growth rate.

We know that the market rate of return (r) is 12%, which is also the discount rate we should use to value future dividends.

55 = D1 / (0.12 - 0.1)
55 = D1 / 0.02
D1 = 55 * 0.02
D1 = 1.10

Therefore, the expected amount of the next dividend to be paid on Energizer's common stock is $1.10.

The best choice is C.

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