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michael's Inc. just paid $2.75 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 5.9 percent. If you require a rate of return of 10.1 percent, how much are you willing to pay today to purchase one share of the company's stock?

Respuesta :

abiolataiwo2015

Answer:

$69.33

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)=[Annual dividend *(Increase in future dividend)]/ (Rate of return- Increase in future dividend)

Let plug in the formula

P(0)=[$2.75*(1+0.059)]/(0.101-0.059)

P(0)=$2.75*1.059/0.042

P(0)=$2.91225/0.042

P(0)=$69.33

Therefore the amount you are willing to pay today to purchase one share of the company's stock will be $69.33

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