Question

The next dividend payment by Skippy, Inc., will be $2.12 per share. The dividends are anticipated to maintain a growth rate of 8 percent, forever. The stock currently sells for $43 per share. What is the required return

Answer 1

The answer is 12.9 percent

Step-by-step explanation:

This question will be solved using the Dividend Discount Model. It is one of the valuation methods used in valuing price of Equity/stock.

Po = D1/r - g

Po is the current worth of stocks

D1 is the next dividend paid

r is the rate of return

g is the growth rate

$43 = $2.12/ r - 0.08

43r - 3.44 = 2.12

43r = 5.56

r = 5.56/43

=0.129

Expressed as a percentage:

12.9 percent