Ask Question
2 December, 03:15

Sessler manufacturers made two announcements concerning its common stock today. first, the company announced that the next annual dividend will be $1.55 a share. secondly, all dividends after that will increase by 1.5 percent for the foreseeable future. what is the maximum amount you should pay to purchase a share of this stock today if you require a 16 percent rate of return?

+5
Answers (1)
  1. 2 December, 03:37
    0
    To solve this problem, let us recall that the formula for calculating the required present amount is:

    P = D / (ROR - ROI)

    where,

    D = annual dividend per share = $1.55

    ROR = rate of return = 0.16

    ROI = rate of increase = 0.015

    Calculating for the required amount, P:

    P = $1.55 / (0.16 - 0.015)

    P = $10.69

    Therefore, you should pay around $10.70 to get a 16% rate of return.
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Sessler manufacturers made two announcements concerning its common stock today. first, the company announced that the next annual dividend ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers