Michael\'s, Inc. just paid $2.25 to its shareholders as the annual dividend. Sim
ID: 2689643 • Letter: M
Question
Michael's, Inc. just paid $2.25 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 4.90 percent. If you require a rate of return of 9.1 percent, how much are you willing to pay today to purchase one share of Michael's stock?
Michael's, Inc. just paid $2.25 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 4.90 percent. If you require a rate of return of 9.1 percent, how much are you willing to pay today to purchase one share of Michael's stock?
Explanation / Answer
Current price=D1/(Required return-Growth rate)
=(2.25*1.049)/(0.091-0.049)
=(2.36025/0.042)
which is equal to
=$56.20(Approx).