Mickelson Corporation will distribute a $3.14 dividend per share in the next fiscal year
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
The Dividend in this case is $3.14. Required rate of return is 12 %. N = 1 as it is the first time.
Present Value = 3 / 1 + 0.12 1.
= 3.14 / 1.12
This figure can be used as a basis for calculating the price of a stock that corresponds to an annual return rate of 12 percent.