Mickelson Corporation will pay a dividend of $3.14 per share next year. The company pledges to increase its dividend by 5 percent per year indefinitely. If you require a return of 12 percent on your investment, how much will you pay for the company’s stock today?

Mickelson corporation will pay a dividend of $3.14 per share next

To calculate the amount you would pay for Mickelson Corporation’s stock today, we must first calculate the present value of the future dividend payments:

Present Value = Dividend / (1 + Required Rate of Return) ^ N

Where Dividend is $3.14, Required Rate of Return is 12%, and N is 1 since this is the first year.

Present Value = 3.14 / (1 + 0.12) ^ 1
= 3.14 / 1.12
= 2.82

The stock price that equates to a return of 12 percent can then be calculated using this Present Value figure.