Question

michael's, incorporated, just paid $2.20 to its shareholders as the annual dividend. simultaneously, the company announced that future dividends will be increasing by 4.8 percent. if you require a rate of return of 9 percent, how much are you willing to pay today to purchase one share of the company's stock? group of answer choices'

Answer 1

We can use the dividend discount model to calculate the price of the stock.

Dividend per share (D) = $2.20

Growth rate (g) = 4.8%

Required rate of return (r) = 9%

Price of stock (P) = D / (r - g)

P = $2.20 / (0.09 - 0.048)

P = $2.20 / 0.042

P = $52.38

Therefore, you would be willing to pay $52.38 today to purchase one share of the company's stock.