Fundamentals of Corporate Finance Standard Edition with Connect Plus
Fundamentals of Corporate Finance Standard Edition with Connect Plus
10th Edition
ISBN: 9780077630706
Author: Stephen Ross
Publisher: MCG
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Textbook Question
Chapter 8, Problem 8.1CTF

A stock is selling for $11.90 a share given a market return of 14 percent and a capital gains yield of 5 percent. What was the amount of the last annual dividend that was paid?

Expert Solution & Answer
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Summary Introduction

To determine: The amount of dividend per share paid lastly

Introduction:

Dividend is a sum of money paid to the shareholders of the company. It is distributed among the investors from the portion of a company’s earnings in the form of shares or cash.

Answer to Problem 8.1CTF

The amount of annual dividend per share paid lastly is $1.01.

Explanation of Solution

Given information:

Currently, stocks were sold at a price of $11.90 per share. The market rate of return is 14% on this stock and the capital gains yield is 5%.

The formula to calculate the amount of last annual dividend paid using required rate of return formula:

Po=Do×(1+g)(Rg)

Where,

Po refers to the present price of stock

Do refers to the recent dividend per share paid on the stock

Rrefers to the required return on the stock

g refers to the constant dividend’s growth rate

Compute the present annual dividend per share paid on the stock:

Po=Do×(1+g)(Rg)$11.90=Do×(1+5100)(141005100)$11.90=Do×1+0.05(0.140.05)$11.90=Do×(1.050.09)

$11.90=Do×11.667$11.9011.667=Do$1.01=Do

Hence, the amount of annual dividend per share paid lastly is $1.01.

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Chapter 8 Solutions

Fundamentals of Corporate Finance Standard Edition with Connect Plus

Ch. 8 - An 8 percent preferred stock sells for 54 a share....Ch. 8 - Prob. 8.3CTFCh. 8 - Stock Valuation [LO1] Why does the value of a...Ch. 8 - Stock Valuation [LO1] A substantial percentage of...Ch. 8 - Stock Valuation [LO1] A substantial percentage of...Ch. 8 - Dividend Growth Model [LO1] Under what two...Ch. 8 - Common versus Preferred Stock [LO1] Suppose a...Ch. 8 - Prob. 6CRCTCh. 8 - Growth Rate [LO1] In the context of the dividend...Ch. 8 - Prob. 8CRCTCh. 8 - Prob. 9CRCTCh. 8 - Prob. 10CRCTCh. 8 - Prob. 11CRCTCh. 8 - Two-Stage Dividend Growth Model [LO1] One of the...Ch. 8 - Prob. 13CRCTCh. 8 - Price Ratio Valuation [LO2] What are the...Ch. 8 - Prob. 1QPCh. 8 - Prob. 2QPCh. 8 - Prob. 3QPCh. 8 - Prob. 4QPCh. 8 - Prob. 5QPCh. 8 - Prob. 6QPCh. 8 - Prob. 7QPCh. 8 - 8. Valuing Preferred Stock [LO1] Lane, Inc., has...Ch. 8 - Prob. 9QPCh. 8 - Prob. 10QPCh. 8 - Prob. 11QPCh. 8 - Prob. 12QPCh. 8 - Prob. 13QPCh. 8 - Prob. 14QPCh. 8 - Prob. 15QPCh. 8 - Prob. 16QPCh. 8 - Prob. 17QPCh. 8 - Prob. 18QPCh. 8 - Prob. 19QPCh. 8 - Prob. 20QPCh. 8 - Prob. 21QPCh. 8 - Prob. 22QPCh. 8 - Prob. 23QPCh. 8 - Prob. 24QPCh. 8 - Prob. 25QPCh. 8 - Prob. 26QPCh. 8 - Prob. 27QPCh. 8 - Prob. 28QPCh. 8 - Prob. 29QPCh. 8 - Prob. 30QPCh. 8 - 31. Stock Valuation and PE [LO2] Plush Pilots,...Ch. 8 - Prob. 32QPCh. 8 - Prob. 33QPCh. 8 - Prob. 34QPCh. 8 - Prob. 35QPCh. 8 - Prob. 36QPCh. 8 - Two-Stage Dividend Growth [LO1] Regarding the...Ch. 8 - Prob. 38QPCh. 8 - Prob. 1MCh. 8 - Prob. 2MCh. 8 - Prob. 3MCh. 8 - Prob. 4MCh. 8 - Prob. 5MCh. 8 - Prob. 6M
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    Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY