In: Finance
Suppose a firm’s stock is selling for $36.70. They just paid a $3.15 dividend and dividends are expected to grow at 4% per year. What is the required return?
A) 4% |
|
B) 8.748% |
|
C) 8.583% |
|
D) 12.583% |
|
E) 12.926% |
Ans E) 12.926%
P0 = | Price of Share |
D1 = | Current Dividend |
Ke = | Cost of Equity |
g = | growth rate |
P0 = | D1 / (Ke - g) |
36.70 = | 3.276 / (Ke - 4%) |
Ke - 4% = | 3.276 / 36.70 |
Ke - 4% = | 8.926% |
Ke = | 8.926% + 4% |
Ke = | 12.926% |
D1 = | D0 ( 1 + g) |
3.15 * (1 + 4%) | |
$3.2760 |