Stock Price : Solution set
As an analyst at Churnem & Burnem Securities, you are responsible for making recommendations to your firm's clients regarding common stocks. After gathering data on Denver Semiconductors, you have found that its dividend has been growing at a rate of 8% per year to the current (Do) $1.25 per share. The stock is now selling for $24 per share, and you believe that an appropriate rate of return for this stock is 15% per year.
a. If you expect that the dividend will grow at a 8% rate into the foreseeable future, what is the highest price at which you would recommend purchasing this stock to your clients?