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26 February, 14:56

Next year, Jensen's will pay an annual dividend of $2.75 per share. The company has been reducing the dividends by 10 percent annually. How much are you willing to pay today to purchase stock in this company if your required rate of return is 11.5 percent?

$11.92

$17.87

$12.79

$18.33

$16.50

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Answers (1)
  1. 26 February, 15:36
    0
    you willing to pay today to purchase stock in this company is $12.79

    Explanation:

    Given data

    annual dividend D = $2.75 per share

    reducing the dividends d = 10 percent annually = 0.10

    rate of return r = 11.5 percent = 0.115

    to find out

    How much are you willing to pay today

    solution

    first we calculate the purchase price that is

    purchase price = D / (r + d)

    put all these value

    purchase price = 2.75 / (0.115 + 0.10)

    purchase price = 2.75 / 0.215

    purchase price = 12.79069

    so you willing to pay today to purchase stock in this company is $12.79
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