Final answer:
The expected return on an investment in Zebar, given that its dividends grow indefinitely at 8 percent, is calculated using the Gordon Growth Model, and it comes out to be 10.15%.
Step-by-step explanation:
The question asks to calculate the expected return on an investment in a stock, Zebar, that paid a dividend of $0.60 and is expected to grow these dividends indefinitely at 8 percent. This is a finance problem that involves the Gordon Growth Model (also known as the Dividend Discount Model), which determines the value of a stock based on its expected dividends that are to grow at a constant rate forever.
To find the expected return, we use the formula: Required Rate of Return = (Next Year's Dividend / Current Stock Price) + Growth Rate. Assuming that the dividends grow indefinitely at a rate of 8%, we can predict the next year's dividend to be $0.60 * (1 + 0.08) = $0.648. Plugging the values into the formula gives us: Expected Return = ($0.648 / $32.00) + 0.08, which calculates to an expected return of 10.15%.