To solve this problem, let us recall that the formula for
calculating the required present amount is:
P = D / (ROR – ROI)
where,
D = annual dividend per share = $1.55
ROR = rate of return = 0.16
ROI = rate of increase = 0.015
Calculating for the required amount, P:
P = $1.55 / (0.16 – 0.015)
P = $10.69
Therefore, you should pay around $10.70 to get a 16% rate of
return.
