Question

The next dividend payment by Savitz, Inc., will be $2.35 per share. The dividends are anticipated to maintain a growth rate of 5 percent forever. If the stock currently sells for $44 per share, what is the required return

Answer 1

10.34%

Step-by-step explanation:

The next dividend payment by Savitz incorporation is $2.35 per share

The growth rate is 5%

= 5/100

= 0.05

The stock is currently being sold at $44 per share

Therefore, the required return can be calculated as follows

R= D1/Po + g

= $2.35/$44 + 0.05

= 0.0534+0.05

= 0.1034×100

= 10.34%

Hence the required return is 10.34%