5 pts D Question 15 Horizon Groups stock has a required rate

5 pts D Question 15 Horizon Group\'s stock has a required rate of return of 108% and it sells for S87.50 per share, with a dividend that is expected to grow at a constant rate of 6% per year. What was the company\'s last dividend, Do Your answer should be between 2.10 and 8.22, rounded to 2 decimal places, with no special characters

Solution

P0 = [ D0 x (1 + g) ] / (Ke - g)

where, P0 = stock price, D0 = last dividend, g = constant growth rate, Ke = required return

$87.50 = [ D0 x (1 + 0.06) ] / (0.108 - 0.06)

or, D0 x (1 + 0.06) = $87.50 x 0.048

or, D0 = $4.20 / 1.06 = $3.96226415 or $3.96 (Input as 3.96)