Question

You are considering purchasing stock in Canyon Echo. You feel the company will increase its dividend at 4.4 percent indefinitely. The company just paid a dividend of $3.29 and you feel that the required return on the stock is 10.6 percent. What is the price per share of the company's stock?

Answer 1

Answer: $50.83

Explanation:

Based on the information given in the question, the following can be deduced:

r = required return = 10.6% = 0.106

D0 = Dividend = 3.29

g = growth rate = 4.4% = 0.044

The price per share of the company's stock will be:

= D0(1 + g)/(r - g)

= 3.29(1 + 0.044)/(0.106 - 0.044)

= 3.29(1.044)/(0.062)

= 3.15134/0.062

= $50.83