Question

You are considering purchasing stock in Canyon Echo. You feel the company will increase its dividend at 4.3 percent indefinitely. The company just paid a dividend of $3.26 and you feel that the required return on the stock is 10.5 percent. What is the price per share of the company's stock

Answer 1

Answer: $54.84

Step-by-step explanation:

Here, the price per share will be calculated as per the constant growth formula : Price = (Dividend x (1+growth rate)) ÷ (return rate - growth rate)

Dividend $3.26 , growth rate = 4.3%=0.043 , return rate = 0.105

`\text{Price}=(3.26*(1+0.043))/(0.105-0.043)\\\\=(3.26*(1.043))/(0.062)\\\\=(3.40018)/(0.062)\approx\ \$54.84`

Hence, the price per share of the company's stock = $54.84