Question

Next year, Jensen’s will pay an annual dividend of $2.75 per share. The company has been reducing the dividends by 10 percent annually. How much are you willing to pay today to purchase stock in this company if your required rate of return is 11.5 percent?

$11.92
$17.87
$12.79
$18.33
$16.50

Answer 1

you willing to pay today to purchase stock in this company is $12.79

Step-by-step explanation:

Given data

annual dividend D = $2.75 per share

reducing the dividends d = 10 percent annually = 0.10

rate of return r = 11.5 percent = 0.115

to find out

How much are you willing to pay today

solution

first we calculate the purchase price that is

purchase price = D / (r + d)

put all these value

purchase price = 2.75 / (0.115 + 0.10)

purchase price = 2.75 / 0.215

purchase price = 12.79069

so you willing to pay today to purchase stock in this company is $12.79