Question

1. The common stock of Textile Mills pays an annual dividend of $1.65 a share. The company has promised to maintain a constant dividend even though economic times are tough. How much are you willing to pay for one share of this stock if you want to earn a 12 percent annual return

Answer 1

Answer:

The maximum price of the stock that can be paid is $13.75

Explanation:

The value can be found using the Dividend Valuation Model the value of the stock can be calculated from the following formula:

Value of Stock = Dividend paid / Required rate of return

By putting the values we have:

Value of stock = $1.65 / 12% = $13.75