Question

Essler Manufacturers made two announcements concerning its common stock today. First, the company announced that the next annual dividend will be $1.75 a share. Secondly, all dividends after that will decrease by 1.5 percent annually.

What is the maximum amount you should pay to purchase a share of this stock today if you require a 14 percent rate of return?
1. $11.29
2. $12.64
3. $13.27
4. $14.00
5. $14.21

Answer 1

1. $11.29

Step-by-step explanation:

maximum amount you should pay to purchase a share of this stock today

= 1.75/(0.14 + 0.015)

= $11.29

Therefore, The maximum amount you should pay to purchase a share of this stock today is $11.29