Leslie\'s Unique Clothing Stores offers a common stock that pays an annual divid

Question

Leslie's Unique Clothing Stores offers a common stock that pays an annual dividend of $2.20 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn a 10.30 percent return on your equity investments?

Leslie's Unique Clothing Stores offers a common stock that pays an annual dividend of $2.20 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn a 10.30 percent return on your equity investments?

Explanation / Answer

Po = Do (1+g) / (r-g)

g = growth rate = 0 % in this case since it is assumed constant

r = required rate of return = 0.1030

Do = initial dividend paid = 2.20

Po = Do / r = 2.20 / 0.1030 = 21.36 $

option c

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