You recently paid $31.50 for a share of Breaking Benjamin stock. Your required rate of return is 13% and you expect the company to increase dividends at a constant rate or 2.5% for the forseeable future. What was the most recent dividend of Breaking Benjamin?
To find the most recent dividend of Breaking Benjamin, we can use the Gordon Growth Model. This model calculates the value of a stock based on its expected dividends and required rate of return.
The formula for the Gordon Growth Model is:
D1 / (r - g)
Where:
D1 = Dividend expected in the next period
r = Required rate of return
g = Growth rate of dividends
In this case, the required rate of return (r) is 13% and the growth rate of dividends (g) is 2.5%. Let's assume that D1 is the most recent dividend.
Using the formula, we can rearrange it to solve for D1:
D1 = (r - g) * Current stock price
Substituting the given values:
D1 = (0.13 - 0.025) * $31.50
Calculating:
D1 = 0.105 * $31.50
D1 = $3.3075
Therefore, the most recent dividend of Breaking Benjamin was approximately $3.31.
To determine the most recent dividend of Breaking Benjamin, we can make use of the Gordon Growth Model. This model calculates the intrinsic value of a stock based on the expected dividend growth rate and the required rate of return. The formula for the Gordon Growth Model is:
Intrinsic Value = D / (r - g)
Where:
- D represents the most recent dividend payment
- r represents the required rate of return
- g represents the expected dividend growth rate
In this case, we are given:
- The stock price: $31.50
- The required rate of return: 13%
- The expected dividend growth rate: 2.5%
To solve for D, we can rearrange the formula:
D = Intrinsic Value * (r - g)
First, let's convert the required rate of return and the expected dividend growth rate to decimals:
Required rate of return: 13% = 0.13
Expected dividend growth rate: 2.5% = 0.025
Next, substitute the given values into the formula:
D = 31.50 * (0.13 - 0.025)
D = 31.50 * 0.105
D ≈ 3.3075
Therefore, the most recent dividend payment of Breaking Benjamin was approximately $3.31.