Show Boat Dinner Theatres has paid annual dividends of $0.32, $0.48, and $0.60 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 flat. Given the lack of future growth, you will only buy this stock if you can earn at least a 16 percent rate of return. What is the maximum amount you are willing to pay for one share of this stock today?

Question

Quizplus · Accepted Answer

The maximum price you are willing to pay for a stock with constant dividends is calculated using the formula: Price = Dividend / Required Rate of Return. Here, the dividend is $0.60 and the required rate of return is 16% (0.16). Thus, Price = $0.60 / 0.16 = $3.75.

Show Boat Dinner Theatres Has Paid Annual Dividends of $0