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arm Machinery stock currently sells for $54.80 per share. The market required return is 14.2 percent while the company maintains a constant 3 percent growth rate in dividends. What was the most recent annual dividend per share paid on this stock

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Answer: $5.96

Explanation:

Using the Gordon growth model, this can be calculated.

Assume the most recent dividend is x.

Gordon growth model;

Price of stock = (Most recent dividend * ( 1 + growth)) / (Required return - growth rate)

54.80 = (x * (1 + 3%)) / (14.2% - 3%)

54.80 = 1.03x / 11.2%

1.03x = 54.80 * 11.2%

x = (54.80 * 11.2%) / 1.03

x = $5.96

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