Question

Universal Forest's current stock price is $154.00 and it is likely to pay a $5.23 dividend next year. Since analysts estimate Universal Forest will have a 13.0 percent growth rate, what is its required return?
14.71 percent
15.28 percent
13.62 percent
16.40 percent

Answer 1

Answer:

16.40 percent

Step-by-step explanation:

-The growth rate is given by the formula:

$g=R-\frac{D_1}{P_O}$

Where

$g$ is the growth rate

$R$ is the required return

$D_1, \ \ P_o$ is the expected next dividend payout and current share prices respectively.

#We make R the subject of the formula and substitute to solve:

$g=R+\frac{D_1}{P_o}\\\\R=g+\frac{D_1}{P_o}\\\\=0.13+\frac{5.23}{134}\\\\=0.1640\\\\=16.40\%$

Hence, the required return is 16.40%