Polar Mechanical Systems will pay an annual dividend of $1.88 per share next year. The company just announced that future dividends will be increasing by 1.2 percent annually. How much are you willing to pay for one share of this stock if you require a rate of return of 9.68 percent

Question

Sharon Hanson

Business

1 July, 01:34

Polar Mechanical Systems will pay an annual dividend of $1.88 per share next year. The company just announced that future dividends will be increasing by 1.2 percent annually. How much are you willing to pay for one share of this stock if you require a rate of return of 9.68 percent

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Answers (1)

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Simone · Answer 1

I will pay $22.17 for one share.

Explanation:

Dividend valuation model is used to value the stock on the basis of their dividend payment, growth rate of dividend and required rate of return.

Us following formula of DVM to calculate thte value of stock

P = D / (Required rate of return - Growth rate)

P = $1.88 / (9.68% - 1.2%)

P = $22.17