Question

Leslie's Unique Clothing Stores offers a common stock that pays an annual dividend of $2.00 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn a 12% return on your equity investments?

Answer 1

$16.67

Step-by-step explanation:

Data provided in the question:

Annual dividend paid per share on the common stock = $2.00

Required return on the equity = 12% = 0.12

Now,

The Price per share willing to pay for the common stocks will be

= [ Dividend per share ] ÷ [ Required rate of return ]

or

Price per share = $2.00 ÷ 0.12

or

Price per share = $16.67