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% 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%. Should she buy
Petscan shares or not?