To find the maximum price you’d be willing to pay for this stock, we use the Gordon Growth Model (also called the Dividend Discount Model), which values a stock with constant growth dividends. The formula is:

$P = \frac{D_1}{r - g}$

where:

• $P$ is the price of the stock,
• $D_1$ is the dividend expected in the next year,
• $r$ is the required rate of return (10% or 0.10),
• $g$ is the growth rate (6% or 0.06).

Step 1: Calculate $D_1$

The dividend paid last year was $D_0 = 2.30$. To find $D_1$: $D_1 = D_0 \times (1 + g) = 2.30 \times (1 + 0.06) = 2.30 \times 1.06 = 2.438$

Step 2: Plug values into the Gordon Growth Model

$P = \frac{2.438}{0.10 - 0.06} = \frac{2.438}{0.04} = 60.95$

Rounding this to the nearest dollar, the closest option is:

$61

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Would you like a breakdown of each step or have any questions?

Here are 5 related questions for further exploration:

1. What if the required rate of return were 8% instead of 10%?
2. How would a higher growth rate affect the stock price?
3. What if dividends were expected to grow at a declining rate instead?
4. How does the Gordon Growth Model differ from other stock valuation models?
5. What if the company decided to increase the dividend payout next year?

Tip: The Gordon Growth Model works best when the dividend growth rate is lower than the required rate of return.