Question

The next dividend payment by Hoffman, Inc., will be $2.80 per share. The dividends are anticipated to maintain a growth rate of 5.25 percent forever. If the stock currently sells for $49.20 per share, what is the required return

Answer 1

10.94%

Step-by-step explanation:

(Dividend/price)+growth rate

(2.80/49.20)+0.0525=10.94%

Answer 2

the required return is 10.94%

Step-by-step explanation:

The computation of the required return is shown below:

Po = D1 ÷ (Ke - g)

$49.2 = $2.8 ÷ (Ke-.0525)

Ke-.0525 = $2.8 ÷ $49.2

= 0.0569105691

Ke = 0.0569105691+.0525

= 10.94%

hence, the required return is 10.94%