You are considering acquiring a common stock that you would like to hold for one year.You expect to receive both $2.50 in dividends and $28 from the sale of the stock at the end of the year.The maximum price you would pay for the stock today is _____ if you wanted to earn a 15% return.

Question

Quizplus · Accepted Answer

To find the maximum price you would pay today, calculate the present value of the expected cash flows (dividends and sale price) discounted at the desired return rate of 15%. The formula is: Price = (Dividends + Sale Price) / (1 + Return Rate). So, Price = ($2.50 + $28) / 1.15 = $26.52.

You Are Considering Acquiring a Common Stock That You Would