Question

Spencer Co.'s common stock is expected to have a dividend of $3 per share for each of the next 9 years, and it is estimated that the market value per share will be $135 at the end of 9 years. If an investor requires a return on investment of 8%, what is the maximum price the investor would be willing to pay for a share of Spencer Co. common stock today

Answer 1

the maximum price the investor would be willing to pay for a share of Spencer Co. common stock today is $86.27

Step-by-step explanation:

The computation of the maximum price the investor would be willing to pay for a share of Spencer Co. common stock today is shown below:

Expected dividend is

= $3 × 6.2469

= $18.7407

Now the market value is

= $135 × 0.5002

= $67.527

So, the maximum price is

= $18.7407 + $67.527

= $86.27

hence, the maximum price the investor would be willing to pay for a share of Spencer Co. common stock today is $86.27