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7 September, 05:06

Hardees' common stock sells for $21 a share and pays an annual dividend that increases by 5% annually. The market rate of return on this stock is 9%. What is the amount of the last dividend paid by Hardees? Assume the stock is in equilibrium

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  1. 7 September, 07:15
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    The correct answer is $0.8.

    Explanation:

    According to the scenario, the given data are as follows:

    Price of stock = $21

    Market rate of return = 9%

    Growth rate = 5%

    So, we can calculate the last dividend paid by using following formula:

    Price of stock = Last dividend * (1 + Growth rate) : (Rate of return - growth rate)

    By putting the value, we get

    $21 = Last dividend * (1 + 0.05) : (0.09 - 0.05)

    $21 = Last dividend * 1.05 : 0.04

    Last dividend = $0.8
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