Question

caccamise company is expected to maintain a constant 5.2 percent growth rate in its dividends indefinitely. the company has a dividend yield of 7 percent. what is the required return on the company's stock? (do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

The required return on Caccamise Company's stock is calculated using the Gordon Growth Model and is found to be 12.20 percent, derived from adding the constant dividend growth rate (5.2%) to the dividend yield (7%).

Step-by-step explanation:

The student has asked how to calculate the required return on a company's stock given that the company is expected to maintain a constant 5.2 percent growth rate in its dividends indefinitely and has a dividend yield of 7 percent. To find the required return on the company's stock, we use the Gordon Growth Model (also known as the Dividend Discount Model), which states that the required return (r) is equal to the dividend yield plus the growth rate of dividends. Thus, the calculation would be:

r = dividend yield + growth rate = 7% + 5.2% = 12.2%

The required return on the company's stock would therefore be 12.20 percent.