Question

Mumford and Daughters Corporation stock is currently selling for $58.00. It is expected to pay a dividend of $5.00 at the end of the year. Dividends are expected to grow at a constant rate of 7.5% indefinitely. Compute the required rate of return on the stock.

Answer 1

16.12%

Step-by-step explanation:

The current stock price for Mumford and daughter corporation stock is $58.00

The expected dividend to be paid is $5

The growth rate is 7.5%

Therefore the required rate of return can be calculated as follows

= 5/58 + 7.5/100

= 0.0862 + 0.075

= 0.1612×100

= 16.12%

Hence the required rate of return is 16.12%