Question

The next dividend payment by Skippy, Inc., will be $2.95 per share. The dividends are anticipated to maintain a growth rate of 4.8 percent, forever. If the stock currently sells for $53.10 per share, what is the required return?A) 2.67%
B) 5.56%
C) 4.80%
D) 10.36%
E) .27%

Answer 1

Answer:

the correct option is D. 10.36%

Explanation:

The computation of the required return is shown below:

As we know that

Current Price = Expected Dividend ÷ (Required Return - Growth Rate)

(Required Return - Growth Rate) = Expected Dividend ÷ Current Price

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

= ($2.95 ÷ $ 53.10) + 4.8%

= 10.36%

hence, the correct option is D. 10.36%

We simply applied the above formula so that the correct value could come

And, the same is to be considered