Gail Dribble is analyzing the shares of Petscan Radiology. Petscan's stock pays a dividend once each year, and it just distributed this year's $0.85 dividend. The market price of the stock is $12.14. Gail estimates that Petscan will increase its dividends by 7 percent per year forever.
After contemplating the risk of Petscan stock, Gail is willing to hold the stock only if it provides an annual expected return of at least 13 percent. Should she buy Petscan shares or not?