Miller Brothers Hardware is expected to an annual dividend o

Miller Brothers Hardware is expected to an annual dividend of $1.15 per share next year. Today, the company announced that future dividends will be increasing by 2.6 percent annually. If you require a 12 percent rate of return, how much are you willing to pay to purchase one share of this stock today? A. $12.23 B. $12.55 C. $12.88 D. $12.72

Solution

Share price = Expected dividend / (required rate - growth rate) = 1.15/ (12%-2.6%)= 12.23

Option-A is correct