Last year Microsoft paid out a dividend of $2.50. Next year, the expected return on equity is

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Question:

Last year Microsoft paid out a dividend of $2.50. Next year, the expected return on equity is equal to 12.5%. You know that an adequate return required by the company’s shareholders on holding Microsoft stock is 11%. You also know that Microsoft’s plowback ratio is 60%.

Calculate the dividend amount in the coming year.