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Kellner Motor Co.'s stock has a required rate of return of 11.50%, and it sells for $25.00 per share. Kellner's dividend is expected to grow at a constant rate of 7.00%. What was the last dividend, D0?a. $0.95b. $1.05c. $1.16d. $1.27e. $1.40

Answer :

Answer:

Last dividend is $1.05

So option (b) is correct option

Explanation:

We have given Stock Price = $25.00

Required Return = 11.50%  = 0.1150

Growth rate is given as = 7.00%  = 0.07

We know that stock price is given by [tex]P_0=\frac{D_1}{r_s-g}[/tex] , here [tex]D_1[/tex] is dividend [tex]r_s[/tex] is required rate and g is growth rate

So [tex]25=\frac{D_1}{0.1150-0.07}[/tex]

[tex]D_1=$1.25[/tex]

We know that last dividend is given by

[tex]last\ dividend=\frac{D_1}{1+g}[/tex]

[tex]last\ dividend=\frac{1.25}{1+0.7}=$1.05[/tex]

So option (b) is correct option

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