Question

The next dividend payment by Hoffman, Inc., will be $3.30 per share. The dividends are anticipated to maintain a growth rate of 2.75 percent forever. If the stock currently sells for $50.20 per share, what is the required return? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Answer:

required return =  9.32 %

Explanation:

given data

dividend payment = $3.30 per share

growth rate of 2.75 %

stock currently sells = $50.20 per share

to find out

required return

solution

we will apply here required return formula that is express as

required return = $\frac{D}{p}$ + g

here D is dividend at the end of year i.e 3.30 and p is price at the beginning i.e. 50.20 and g is growth rate of 2.75%

so put all these value we get

required return = $\frac{D}{p}$ + g

required return = $\frac{3.30}{50.20}$ +2.75%

required return = 6.57% + 2.75%  

required return =  9.32 %