Bechtel Machinery stock currently sells for $50 per share. The market requires a 15 percent return on the firm's stock. The company maintains a constant 8 percent growth rate in dividends. What was the most recent annual dividend per share paid on this stock?

Question

Quizplus · Accepted Answer

We can use the formula for the dividend discount model: 
P = D/(r-g) 
Where P is the stock price, D is the most recent annual dividend per share, r is the required return, and g is the growth rate of dividends.

Plugging in the given information, we get: 
50 = D/(0.15-0.08) 
50 = D/0.07 
D = 50 x 0.07 
D = 3.50

Therefore, the most recent annual dividend per share paid on this stock was $3.50, which corresponds to choice (B).

Bechtel Machinery Stock Currently Sells for $50 Per Share