Question

The common stock of Textile Mills pays an annual dividend of $1.65 a share. The company has promised to maintain a constant dividend even though economic times are tough. How much are you willing to pay for one share of this stock if you want to earn a 12 percent annual return?

Answer 1

$13.75

Step-by-step explanation:

The following information is:

Annual dividend == $1.65 per share

And, the annual return = 12%

By using these information, we can find out the paying amount for one share which is shown below:

Paying amount = (Annual dividend ÷ Annual return) × 100

= $1.65 ÷ 12% × 100

= $13.75

We divide the annual dividend by the annual return so that per share value can arrive