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BaLLatris [955]
3 years ago
7

he next dividend payment by Savitz, Inc., will be $2.34 per share. The dividends are anticipated to maintain a growth rate of 4.

5 percent forever. If the stock currently sells for $37 per share, what is the required return?
Business
1 answer:
Elan Coil [88]3 years ago
8 0

Answer:

The Required Return is 10.82%.

Explanation:

The Dividends Model for the Constant Growth is given below:

                                          P0 = D1 / (Ke - g)

Arranging the above equation for "Ke", that is the Required Return:

                                      ⇒ Ke = (D1 / P0) + g

Putting Values and we get:

Required Return = Ke = (2.34 / 37) + .045 = .1082 = 10.82%.

Thanks!

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