Asked by
Adiel Davis
on Dec 09, 2024
Verified
Martin's Yachts has paid annual dividends of $1.40, $1.75, and $2.00 a share over the past three years, respectively. The company now predicts that it will maintain a constant dividend since its business has leveled off and sales are expected to remain relatively constant. Given the lack of future growth, you will only buy this stock if you can earn at least a 15% rate of return. What is the maximum amount you are willing to pay to buy one share of this stock today?
A) $10.00
B) $13.33
C) $16.67
D) $18.88
E) $20.00
Constant Dividend
A dividend policy in which a company pays out a fixed amount of dividend per share irrespective of its financial performance.
Rate of Return
The profit or deficit realized on an investment over a certain time, denoted as a percentage of the investment's beginning price.
Annual Dividends
The total amount of dividend payments a company distributes to its shareholders over a year.
- Ascertain the present value of stocks through evaluation of diverse dividend growth rates and obligatory returns.
- Comprehend the principle of the required rate of return and its impact on the valuation of stocks.
Verified Answer
GS
Learning Objectives
- Ascertain the present value of stocks through evaluation of diverse dividend growth rates and obligatory returns.
- Comprehend the principle of the required rate of return and its impact on the valuation of stocks.