Question

Michael's, Inc., just paid $2.60 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 5.6 percent. If you require a rate of return of 9.8 percent, how much are you willing to pay today to purchase one share of the company's stock

Answer 1

Answer:

$65.37

Explanation:

Calculation for how much are you willing to pay today to purchase one share of the company's stock

Using this formula

P/0 = D0 ( 1 + g ) / R-g

Let plug in the formula

P/0 = $2.60 (1 + .056) / .098 - .056

P/0 = $2.60 (1 .056)/0.042

P/0=$2.7456/0.042

P/0=$65.37

Therefore how much are you willing to pay today to purchase one share of the company's stock will be $65.37