Question

"The next dividend payment by Savitz, Inc., will be $1.60 per share. The dividends are anticipated to maintain a growth rate of 6 percent forever. If the stock currently sells for $30 per share, what is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)"

Answer 1

Answer: 11.33%

Explanation:

We will use the constant growth model to calculate the required stick of return. This will be:

R = (D1 / Po) + G

R = ($1.60/$30) + 6%

R = 0.0533 + 0.06

R = 0.1133

R = 11.33%

The required return is 11.33%