A drug company has just paid a dividend of $4 per share. The dividend is expected to grow at 5% per year. The S&P500 has had an annualized return of 12% over the last 20 years. The 30 year Treasury bond is currently trading at 3.5%. The drug companies beta is 1.3.

What rate of return would you require if you were to consider purchasing the drug company?

What would the appropriate price for the drug company be given the information above?