(Common stock valuation) Bates Inc. pays a dividend of $2.75 and is currently selling for $36.30....
(Common stock valuation) Bates Inc. pays a dividend of $2.75 and is currently selling for $36.30. If investors require a return of 16 percent on their investment from buying Bates stock, what growth rate would Bates Inc. have to provide the investors?
The growth rate Bates Inc. would have to provide the investors is ??
Homework Answers
Answer : Growth rate 7.83%
Required Return = (Expected Dividend / Current Price) + growth rate
0.16 = {2.75 * (1 + growth rate)] / 36.30} + growth rate
0.16 = 0.075757576 + 0.0757576 growth rate + growth rate
==>1.0757576 growth rate = 0.16 - 0.075757576
= 0.08424242425 / 1.0757575
= 0.0783 or 7.83%
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