Michael\'s, Inc. just paid $2.60 to its shareholders as the annual dividend. Sim
ID: 2779055 • Letter: M
Question
Michael's, Inc. just paid $2.60 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 5.60 percent. If you require a rate of return of 9.8 percent, how much are you willing to pay today to purchase one share of Michael's stock?
Michael's, Inc. just paid $2.60 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 5.60 percent. If you require a rate of return of 9.8 percent, how much are you willing to pay today to purchase one share of Michael's stock?
Explanation / Answer
Purchase Price = D1/ Ke-G
= 2.60(1+0.0560) / 9.8%-5.60%
= 2.7456/4.2% i.e 65.37