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What is the maximum price you should be willing to pay

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Question - Gentry Can Company's latest annual dividend of $1.25 per share was paid yesterday and maintained its historic 7% annual rate of growth. You plan to purchase the stock today because you feel that the dividend growth rate will increase to 8% for the next three years and the selling price of the stock will be $40 per share at the end of that time.

(a) How much should you be willing to pay for the GCC stock if you require a 14% return?

(b) What is the maximum price you should be willing to pay for GCC stock if you feel the 8% growth rate can be maintained indefinitely and you require a 14% return?

Reference no: EM132474207

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