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Weisbro and Sons common stock sells for $34 a share and pays an annual dividend that increases by 3 percent annually. The market rate of return on this stock is 10.7 percent. What is the amount of the last dividend paid by Weisbro and Sons

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Answer:

Dividends per share are 2.6 dollars.

Explanation:

According to the Gordon growth formula, which states that the price of the stock is calculated as dividends/rate of return - growth rate of dividends, dividends are calculated as price * (rate of return - growth rate of dividends). In this case 34* 7.7% or 2.6 dollars per share. This model can be used as its assumption about constant growth rate of dividends is fulfilled.