Question

The next dividend payment by ZYX, Inc., will be $2.95 per share. The dividends are anticipated to maintain a 4 percent growth rate, forever. If ZYX stock currently sells for $58 per share, the required return is

Answer 1

Answer:

9.09%

Explanation:

The required return of  ZYX, Inc shall be determined using the following mentioned formula:

r=[d(1+g)/MV]+g

In the given question

r=required rate of return of ZYX, Inc=?

d(1+g)=next dividend payment to be made by the ZYX, Inc=$2.95

MV=current selling price of share=$58

g=growth rate of dividend=4%

r=required rate of return=[$2.95/$58]+4%

r=required rate of return=9.09%