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10 February, 05:30

Q2) The next dividend payment by Savitz, Inc., will be $3.21 per share. The dividends are anticipated to maintain a growth rate of 4 percent forever. If the stock currently sells for $42 per share, what is the required return

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  1. 10 February, 07:22
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    11.64%

    Explanation:

    The next dividend payment for Savitz Inc. is $3.21 per share

    The growth rate is 4%

    = 4/100

    = 0.04

    The current stock price is $42 per share

    Therefore, the required rate of return can be calculated as follows

    R = Next dividend payment/Current stock price + growth rate

    = $3.21/$42 + 0.04

    = 0.0764+0.04

    = 0.1164*100

    = 11.64%

    Hence the required rate of return is 11.64%
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