Question

GEO Inc. has paid annual dividends of $.41, $.47, and $.52 a share over the past three years, respectively. The company now predicts that it will maintain a constant dividend since its business has leveled off and sales are expected to remain relatively flat. Given the lack of future growth, you will only buy this stock if you can earn at least a rate of return of 16 percent. What is the maximum amount you are willing to pay for one share of this stock today?

Answer 1

$3.52

Step-by-step explanation:

Given that

Maximum amount of share = 0.52

Rate of return = 16%

The computation of the maximum amount for one share is given below:-

= Maximum amount of share ÷ Rate of return

= $0.52 ÷ 16%

= $0.52 ÷ 0.16

= $3.52

For calculating the maximum amount for one share is simply divided the Rate of return from Maximum amount of share.