Question

Woidtke Manufacturing's stock currently sells for $26 a share. The stock just paid a dividend of $1.50 a share (i.e., D₀ = $1.50), and the dividend is expected to grow forever at a constant rate of 9% a year.

What is the estimated required rate of return on Woidtke's stock? Round the answer to three decimal places

Thanks!

Answer 1

Price per share = Dividend at time 0*(1+ growth rate) / required rate of return 26 = 1.5*(1+9%) / required rate of return Required rate of return = 1.5*(1+9%)/26 Required rate of return = 6.288%