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Ilia_Sergeevich [38]
3 years ago
12

Michael's, Inc., just paid $2.55 to its shareholders as the annual dividend. Simultaneously, the company announced that future d

ividends will be increasing by 5.5 percent. If you require a rate of return of 9.7 percent, how much are you willing to pay today to purchase one share of the company's stock?
Business
1 answer:
tiny-mole [99]3 years ago
4 0

Answer:

$64.05

Explanation:

The computation of the today share is shown below:

= {Current year dividend × ( 1 + growth rate)} ÷ (Required rate of return - growth rate)

= {$2.55 × ( 1 + 5.5%)} ÷ (9.7% - 5.5%)

= ($2.55 × 1.055) ÷ (9.7% - 5.5%)

= 2.69025 ÷ 4.2%

= $64.05

The {Current year dividend × ( 1 + growth rate)} reflect the next year dividend

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If one is thinking about investing in a  liquid asset, surely is because it will need the cash in the short run. On the contrary, we could invest in other financial instruments less liquid (typically those who offer higher yields and have  longer terms), because we are not going to need the money for the moment, and we want to take advantage of that to get a higher yields.

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Answer:

Results are below.

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Weed-trimmers= 0.5*152,000= 76,000

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