Marshall Manufacturing has common stock which paid a dividend of $1.00 a share last year.You expect the stock to grow at 5% per year.If the appropriate rate of return on this stock is 12%,how much are you willing to pay for the stock today?

Question

Quizplus · Accepted Answer

To calculate the current price of the stock, we can use the dividend discount model formula, which is:
Stock Price = Dividend / (Rate of Return - Growth Rate)
Plugging in the given values, we get:
Stock Price = 1.00 / (0.12 - 0.05) = $15.00
Therefore, the most appropriate choice is B.

Marshall Manufacturing Has Common Stock Which Paid a Dividend of $1.00