The canning company has been hard hit by increased competition. analysts predict that earnings (and dividends) will decline at a rate of 5 percent annually into the foreseeable future. if canning's last dividend (d0) was $2.00, and investors' required rate of return is 17 percent, what will be canning's stock price in 3 years?

$14.25

Step-by-step explanation:

We can use DDM (Dividend Discount Model) to answer this.

Firstly we have:

Where D_1 is the dividend next year

D_0 is current divident

g is the growth rate (or decline rate)

We need to find until D_3 since we want stock price in 3 years.

So,

we know D_0 = 2

g = -0.05

Now, we have:

Now calculating D_2:

Calculating D_3:

The stock price follows the formula:

Where D_3 is dividend in 3 years [1.71]

r is the required rate of return [17%]

g is the growth rate [-0.05]

Now, we have:

Thus, $14.25 in 3 years

c. 4 and 1/2 pounds is the answer! : )

answer:

c. the third graph