Question

You are considering purchasing stock in Canyon Echo. You feel the company will increase its dividend at 4.2 percent indefinitely. The company just paid a dividend of $3.23 and you feel that the required return on the stock is 10.4 percent. What is the price per share of the company's stock

Answer 1

$54.35

Step-by-step explanation:

The computation of the price per share of the common stock is shown below:

= Next year dividend ÷ (Required rate of return - growth rate)

where,

Next year dividend is

= $3.23 + $3.23 × 4.2%

= $3.23 + 0.13566

= $3.37

And, the other items would remain the same

So, the price per share is

= $3.37 ÷ (10.4% - 4.2%)

= $3.37 ÷ 6.2%

= $54.35