The next dividend payment by Savitz, Inc., will be $1.96 per share. The dividends are anticipated to maintain a growth rate of 4 percent forever. If the stock currently sells for $39 per share, what is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

Question

Business

Alivia Patel

6 December, 11:49

The next dividend payment by Savitz, Inc., will be $1.96 per share. The dividends are anticipated to maintain a growth rate of 4 percent forever. If the stock currently sells for $39 per share, what is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

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Answers (1)

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Anne Villanueva · Answer 1

9.03%

Explanation:

The required rate of return for Savitz, Inc., shall be determined through the following mentioned formula:

r=[d (1+g) / P] + g

In the given question

r=required rate of return=?

d (1+g) = next dividend payment to be made = $1.96 per share

g=growth rate=4%

P = current selling price of share=$39

r=[$1.96/$39] + 4%

r=9.03%