Carmichael, Inc.’s most recent dividend was $3.25 per share. The company announced that all future dividends...

Carmichael, Inc.’s most recent dividend was $3.25 per share. The company announced that all future dividends will increase by 3.5 percent annually. What is the maximum amount you should pay to purchase a share of Carmichael’s stock if your goal is to earn an 11 percent rate of return?

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Expert Solution

P0 = (D0 * (1+g)) / (ke - g)

= ($3.25 * (1 + 3.5%)) / (11% - 3.5%)

= $3.36375 / 7.5%

= $44.85

The maximum amount you should pay to purchase a share of Carmichael’s stock = $44.85

jeff jeffy answered 2 years ago

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