Question

You are considering purchasing stock in Canyon Echo. You feel the company will increase its dividend at 4.1 percent indefinitely. The company just paid a dividend of $3.20 and you feel that the required return on the stock is 10.3 percent. What is the price per share of the company's stock?

Answer 1

Answer:

Price of stock = $53.73

Explanation:

The Dividend Valuation Model is a technique used to value the worth of an asset. According to this model, the worth of an asset is the sum of the present values of its future cash flows discounted at the required rate of return.  

The model is given as  

P = D×(1+g)/(r-g)  

P- price, D- dividend payable now , r -cost of equity, g - growth rate in dividend

DATA:

P= ?

D- 3.20

g- 4.1%

r-10.3%

Price of stock = 3.20× 1.041/(0.103-0.041) = 53.73

Price of stock = $53.73