Question

Caan Corporation will pay a $3.02 per share dividend next year. The company pledges to increase its dividend by 5.5 percent per year indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company's stock today?

A) Stock price $
B) Stock price $

Answer 1

An investor would pay $67.33 for a share of Caan Corporation stock today.

Step-by-step explanation:

To determine the price an investor will pay for a share of stock in Caan Corporation today, we can use the dividend discount model. The formula for the stock price is:

Stock Price = Dividend / (Required Return - Dividend Growth Rate)

Given that the dividend next year is $3.02 per share and the dividend growth rate is 5.5 percent, we can calculate the stock price as follows:

Stock Price = $3.02 / (0.10 - 0.055)

Stock Price = $3.02 / 0.045

Stock Price = $67.33

Therefore, an investor would pay $67.33 for a share of Caan Corporation stock today.