Question

Ecolap Inc. (ECL) recently paid a $1.26 dividend. The dividend is expected to grow at a 20.16 percent rate. At a current stock price of $60.72, what return are shareholders expecting?

Answer 1

Answer:

Expected return will be 22.65 %

Explanation:

We have given recently paid dividend = $1.26

Growth rate g = 20.16 %

Current stock price $P_0=60.12$ $

Next year dividend $D_1=D_0(1+g)=1.26\times (1+0.2016)=1.26\times 1.2016=1.514$

We have to find the expected return $K_e$

We know that current stock price is equal to $P_0=\frac{D_1}{K_e-g}$

$60.72=\frac{1.514}{K_e-0.2016}$

60.72 $K_e$ - 12.241 = 1.514

60.72 $K_e$ = 13.755

$K_e$ = 0.2265 = 22.65 %

So expected return will be 22.65 %