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Nostrana [21]
3 years ago
11

Determine the required rate of return for Johnson and Johnson​, assuming the geometric growth rate was 13.04​% for the period​ 2

001-2010, its trading price on January​ 14, 2011 was ​$62.55​, and the dividend for 2010 was ​$2.110.
Business
2 answers:
Inessa05 [86]3 years ago
7 0

Answer:

13.08%

Explanation:

Use the dividend model to calculate Required return

given P=$62.55

         g=13.04%

          D0=2.110

           r=?

The formula P=D1/r-g

 First calculate D1 =2.110×1.1304

                               =2.385

substitute in the formula and solve for r

62.55 = 2.385/r-13.04

Cross multiply we get

62.55r-815.652 = 2.385

62.55r=818.037

62.55r/62.55=818.037/62.55

r=13.078/13.08%

Aleks04 [339]3 years ago
5 0

Answer:

The required rate of return for Johnson and Johnson is 16.85%

Explanation:

Johnson and Johnson paid an annual dividend of $2.110 last year, the geometric growth rate was 13.04​ percent during last ten years.

To find out the expected dividend to be paid be Johnson and Johnson this year.

= [$2.110(1.1304)]

= $2.385

Required Rate of Return is calculated by the following formula,

R = \frac{expected dividend}{current share price} + growth rate for dividend

R = 2.385/62.55 + 0.1304

R = .1685, or 16.85%

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