You are considering purchasing stock in Canyon Echo. You feel the company will increase its dividend...
You are considering purchasing stock in Canyon Echo. You feel the company will increase its dividend at 3.1 percent indefinitely. The company just paid a dividend of $3.86 and you feel that the required return on the stock is 12.5 percent. What is the price per share of the company's stock?
Homework Answers
Solution: -
Given D0 = $3.86
Growth (g) = 3.1%
Required return (ke) = 12.5%
Now price of stock = D0(1+g) /(ke - g)
= $3.86(1+0.031) /(0.125 - 0.031)
= $3.9797 / 0.094
= $42.337 i.e price of the stock.
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