Question

"The next dividend payment by Savitz, Inc., will be $1.48 per share. The dividends are anticipated to maintain a growth rate of 5 percent forever. If the stock currently sells for $27 per share, what is the required return

Answer 1

Answer:

The correct answer is 10.48%.

Explanation:

According to the scenario, the given data are as follows:

Current price = $27

Expected dividend = $1.48

Growth rate = 5%

So, we can calculate the required return by using following formula:

Required return = (Expected Dividend ÷ Current Price ) + Growth rate

By putting the value in the formula,we get

Required return = ( $1.48 ÷ $27 ) + 5%

= 0.05481 + 0.05

= 0.10481 or 10.48%