Question

You are considering purchasing stock in Canyon Echo. You feel the company will increase its dividend at 4.6 percent indefinitely. The company just paid a dividend of $3.35 and you feel that the required return on the stock is 10.8 percent. What is the price per share of the company's stock?

Answer 1

$56.52

Step-by-step explanation:

Using dividend discount model; the formula for finding the price of a stock is ;

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

r= required return = 10.8%

D0 = Recently paid dividend = 3.35

g = growth rate

Price =
`(3.35(1.046))/(0.108-0.046) \\ \\ = (3.5041)/(0.062) \\ \\ =56.5177`

Price per share is therefore $56.52