The next dividend payment by Hoffman, Inc., will be $2.65 per share. The dividends are anticipated...
The next dividend payment by Hoffman, Inc., will be $2.65 per share. The dividends are anticipated to maintain a growth rate of 4.5 percent forever. If the stock currently sells for $43.15 per share, what is the required return?
Homework Answers
Ans 10.64%
| P0 = | Price of Share |
| D1 = | Dividend |
| Ke = | Cost of Equity |
| g = | growth rate |
| P0 = | D1 / (Ke - g) |
| 43.15 = | 2.65 / (Ke - 4.5%) |
| Ke - 4.5% = | 2.65 / 43.15 |
| Ke - 4.5% = | 6.14% |
| Ke = | 6.14% + 4.5% |
| Ke = | 10.64% |
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