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27 March, 13:12

2. You have just completed an analysis of Rodriguez Manufacturing. You used the Capital Asset Pricing Model to determine that the required rate of return is 13%. The last dividend paid was $1.80, and the current price is $25. Based on new manufacturing processes that the company recently adopted and the company's history of consistently paying dividends, you believe the company's dividends will grow at a constant growth rate of 6%.

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  1. 27 March, 14:44
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    You didn't post the question complete. So I found the expected rate of return. Hope be useful.

    Explanation:

    Required rate of return on stock = 13%

    Expected rate of return is calcualted below Using DDM model:

    Expected rate of return = [$1.80 * (1 + 6%) / ($25) ] + 6%

    = ($1.908 / $25) + 6%

    = 7.632% + 6%

    = 13.632%

    Expected rate of return is 13.632%.
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