Question

Michael's, Inc., just paid $1.85 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 4.1 percent. If you require a rate of return of 8.3 percent, how much are you willing to pay today to purchase one share of the company's stock?

Answer 1

$45.85

Step-by-step explanation:

Price today = Next year dividend / (Rate of return - Dividend growth rate)

Next year dividend = $1.85 * 1.041% = $1.92585

Therefore, we have:

Price today = $1.92585 / (8.3% - 4.1%) = $45.85

Therefore, you will be willing to pay $45.85 today to purchase one share of the company's stock.