Question

The next dividend payment by halestorm, inc., will be $2.16 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

Answer:

Required rate of return = 9.9 % (Approx)

Explanation:

Given:

Anticipated dividend = $2.16 per share

Stock price = $44 per share

Growth rate = 5% = 5 / 100 = 0.05

Required rate of return = ?.

Computation of Required rate of return:

Required rate of return = [Dividend per share / Stock price] + Growth rate

Required rate of return = [$2.16 / $44] + 0.05

Required rate of return = [0.0490] + 0.05

Required rate of return = 0.099

Required rate of return = 9.9 % (Approx)