Use the dividend growth model to determine the required rate of return for equity.Your firm recently paid a dividend of $2.25 per share,has a recent price of $40.20 per share,and anticipates a growth rate in dividends of 3.00% per year for the foreseeable future.
A)8.76%
B)8.60%
C)8.44%
D)There is not enough information to answer this question.

Question

Quizplus · Accepted Answer

The required rate of return can be calculated using the dividend growth model formula: Required Rate of Return = (Dividend per share / Current stock price) + Growth rate. Substituting the given values: (2.25 / 40.20) + 0.03 = 0.056 + 0.03 = 0.086 or 8.6%.

Use the Dividend Growth Model to Determine the Required Rate