Question

Ecolap inc. (ecl) recently paid a $1.02 dividend. The dividend is expected to grow at a 15.12 percent rate. At a current stock price of $71.75, what return are shareholders expecting? (do not round intermediate calculations. Round your answer to 2 decimal places. (e.G., 32.16))

Answer 1

Calculation of Expected rate of return:

The expected rate of return can be calculated using the following formula:

Expected rate of return = (Current Dividend * (1+growth rate) / Price)  +  Growth rate

It is given that Ecolap inc. (ecl) recently paid a $1.02 dividend. The dividend is expected to grow at a 15.12 percent rate. And the current stock price is $71.75.

Hence, Expected rate of return = (1.02*(1+0.1512)/71.75)+0.1512

=(1.174224/71.75)+0.1512

=0.01637+0.1512

=0.1676

=16.76%

Hence, the expected rate of return is 16.76%