Question

Q2) The next dividend payment by Savitz, Inc., will be $3.21 per share. The dividends are anticipated to maintain a growth rate of 4 percent forever. If the stock currently sells for $42 per share, what is the required return

Answer 1

11.64%

Step-by-step explanation:

The next dividend payment for Savitz Inc. is $3.21 per share

The growth rate is 4%

= 4/100

= 0.04

The current stock price is $42 per share

Therefore, the required rate of return can be calculated as follows

R= Next dividend payment/Current stock price + growth rate

= $3.21/$42 + 0.04

= 0.0764+0.04

= 0.1164×100

= 11.64%

Hence the required rate of return is 11.64%