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8 May, 10:28

Michelak's Maritime Industries has relatively stable earnings and pays an annual dividend of $1.50 per share. This dividend has remained constant over the past few years and is expected to remain constant for some time to come. Using the dividend valuation model for a perpetuity, if you want to earn 8% on an investment in the common stock of Michelak's, how much should you pay to purchase a share of stock?

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  1. 8 May, 13:44
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    The amount to be paid is $18.75 if the person wants to earn an 8%

    Explanation:

    To calculate the stock price, and considering the valuation model, we have to consider the following formula

    Annual dividend/Required return

    = $1.50/8%

    = $18.75
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