Question

Caccamise Company is expected to maintain a constant 5.95 percent growth rate in its dividends, indefinitely. If the company has a dividend yield of 4.45 percent, what is the required return on the company's stock? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.9., 32.16.

Answer 1

The required return on Caccamise Company's stock is calculated using the Gordon Growth Model by adding the dividend yield of 4.45% to the constant dividend growth rate of 5.95%, resulting in a required return of 10.40%.

Step-by-step explanation:

The question involves calculating the required return on a company's stock given the dividend yield and the constant growth rate in its dividends. The required return can be found using 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 (g).

To calculate the required return on Caccamise Company's stock:

1. Identify the dividend yield, which is 4.45%.
2. Identify the constant growth rate in dividends, which is 5.95%.
3. Add the dividend yield to the growth rate to get the required return: r = dividend yield + g = 4.45% + 5.95% = 10.40%.

Therefore, the required return on the company's stock is 10.40% percent.