Answer:
The last dividend = $0.84
Explanation:
We know,
Current stock price, [tex]P_{0}[/tex] = [tex]D_{1}[/tex] ÷ ([tex]r_{s} - g[/tex])
Given,
Market rate of return, [tex]r_{s}[/tex] = 13.50% = 0.135
Growth rate, g = 7.50% = 0.075
Expected dividend, [tex]D_{1}[/tex] = [tex]D_{0}[/tex] × (1 + g)
Thus we have to determine [tex]D_{0}[/tex] as it is the current year dividend or most recent dividend.
Current stock price, [tex]P_{0}[/tex] = $15
Putting the values into the above formula, we can get,
$15 = [[tex]D_{0}[/tex] × (1 + g)] ÷ [([tex]r_{s} - g[/tex])]
or, $15 = [[tex]D_{0}[/tex] × (1 + 0.075)] ÷ (0.135 - 0.075)
or, $15 = ([tex]D_{0}[/tex] × 1.075) ÷ 0.06
or, $15 = [tex]D_{0}[/tex] × 17.9167
or, [tex]D_{0}[/tex] = $15 ÷ 17.9167
Therefore, the last dividend [tex]D_{0}[/tex], = $0.84
