Question

dividende p e teato esp i are in te dat b v On January 20 tt the prce f the stock as S bre Use these payments to find the annual dividend assuming the future dividend growth rate will remain the same and the company has an infinite horizon. Does this retun seem reasonable for PepsiCo? Then, find the required rate of return for owth rate [ % (Round to two decimal places) What was the estimated annual required return for PepsiCo's stock? % Round to two decimal places) O B. No Cick 10 select your answeris)

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Answer 1

a). g = [FV / PV]^1/n - 1

= [$1.890 / $0.555]^1/10 - 1 = 1.1304 - 1 = 0.1304, or 13.04%

b). r = [{D0 x (1 + g)} / P0] + g

= [{$1.89 x 1.1304} / $66.78] + 0.1304 = 0.0320 + 0.1304 = 0.1624, or 16.24%

c). This looks like a reasonable required return for a stock.