Universal Forest's current stock price is $154.00 and it is likely to pay a $5.23 dividend next year. Since analysts estimate Universal Forest will have a 13.0 percent growth rate, what is its required return?
A) 16.40 percent
B) 15.28 percent
C) 13.62 percent
D) 14.71 percent

Question

Quizplus · Accepted Answer

The required return can be calculated using the Gordon Growth Model (Dividend Discount Model): Required Return = (Dividend/Current Stock Price) + Growth Rate = ($5.23/$154.00) + 0.13 = 0.034 + 0.13 = 0.164 or 16.40 percent.

Universal Forest's Current Stock Price Is $154