The common stock of JL Recyclers has a required return of 14 percent and a current value of $18.72. The company pays its dividend annually and increases the amount by 4 percent each year. You own 200 shares of this stock. What was the total amount of the last dividend you received?

Question

Quizplus · Accepted Answer

The dividend discount model (DDM) can be used to find the last dividend. The formula is P = D0 * (1 + g) / (r - g), where P is the price, D0 is the last dividend, g is the growth rate, and r is the required return. Solving for D0 gives D0 = P * (r - g) / (1 + g). Substituting the given values: D0 = $18.72 * (0.14 - 0.04) / (1 + 0.04) = $1.80. For 200 shares, the total dividend is 200 * $1.80 = $360.

The Common Stock of JL Recyclers Has a Required Return