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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?

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beritop1089

Answer:

$56.52

Explanation:

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

[tex]\frac{D0(1+g)}{(r-g)}[/tex]

r= required return = 10.8%

D0 = Recently paid dividend = 3.35

g = growth rate

Price = [tex]\frac{3.35(1.046)}{0.108-0.046} \\ \\ = \frac{3.5041}{0.062} \\ \\ =56.5177[/tex]

Price per share is therefore $56.52

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