Question

If Fledgling Electronics is selling for $100 per share today and is expected to sell for $110 one year from now, what is the expected return if the dividend one year from now is forecasted to be $5.00?

Answer 1

Expected return will be considered to be the minimum desired rate of return which the shareholder is expected to get from the company ,which is the cost of capital of the shareholder.

D1= $5 i.e dividend per share for current year

P0= $11O i.e market price per share of current year

KE= D1/PO + GROWTH   * 100

       = $5 / $11O + 0%   * 100

       = 4.5454%(APPROX)

NOTE - 1) If the growth rate of fledging electronics will be provided then it will be more accurate and feasible to give the answer and alternatively you can make assumption of any growth rate and further solve the question after using the above formula.

            2) If the dividend for previous year will be given then I can also calculate the growth rate and can solve the question as well.

             3) It is better to compare the dividend and market price of one year from now to compare the standard for same year i.e why $ 100 have not been taken into consideration.