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24 December, 08:14

Douglass Gardens pays an annual dividend that is expected to increase by 3.6 percent per year. The stock commands a market rate of return of 12.6 percent and sells for $28.50 a share. What is the expected amount of the next dividend?

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  1. 24 December, 11:50
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    The expected next dividend is $2.565

    Explanation:

    The dividend for the Douglass is expected to grow at a constant rate forever. Thus, the constant growth model of DDM is used. The consatnt growth model gives the formula to calculate the price of the stock today. The formula is:

    P0 = D1 / r - g

    As the price and other variables are already known, we can plug in these values in the formula to calculate the next dividend.

    28.5 = D1 / (0.126 - 0.036)

    28.5 * (0.126 - 0.036) = D1

    D1 = 28.5 * 0.09

    D1 = $2.565
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Home » Business » Douglass Gardens pays an annual dividend that is expected to increase by 3.6 percent per year. The stock commands a market rate of return of 12.6 percent and sells for $28.50 a share. What is the expected amount of the next dividend?
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