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20 March, 08:28

Smiling Elephant, Inc., has an issue of preferred stock outstanding that pays a $6.40 dividend every year, in perpetuity. If this issue currently sells for $80.80 per share, what is the required return

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  1. 20 March, 11:36
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    The required return is 7.92%

    Explanation:

    Required return is defined as the minimum return which the investor expects to accomplish through investing in the project.

    The required return would be computed as:

    Required return = Dividend paid each year / Selling price per share

    where

    Dividend paid each year is $6,40

    Selling price per share amounts to 480.80 per share

    Putting the values above:

    Required return = $6.40 / $80.80

    Required return = 7.92%
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