15. Julia Inc. stock currently sells for $84 per share. The market requires a 13% return on
the firm’s stock. If the company maintains a 6% growth rate in dividends, what was the
most recent annual dividend?
A) $5.04
B) $5.55
C) $5.88
D) $6.76
E) $10.92
Answer B
One way to solve this is by solving for the expected dividend D
1 P
0 = D
1 / (r – g) rearranging the formula to solve for D
1 = P
0 x (r – g)
D
1 = $84 x (0.13 – 0.06) = $5.88; we know that D
0 = D
1 / (1 + g)
Therefore D
0 = $5.88 / (1 + 0.06) = $5.55.
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