McCracken Roofing, Inc., common stock paid a dividend of $1.35 per share last year. The company expects earnings and...
McCracken Roofing, Inc., common stock paid a dividend of $1.35 per share last year. The company expects earnings and dividends to grow at a rate of 5% per year for the foreseeable future.
a. What required rate of return for this stock would result in a price per share of $22
b. If McCracken expects both earnings and dividends to grow at an annual rate of 11%, what required rate of return would result in a price per share of $22 is ____%
Homework Answers
a.Required return=(D1/Current price)+Growth rate
=(1.35*1.05)/22+0.05
=11.44%(Approx).
b.Required return=(D1/Current price)+Growth rate
=(1.35*1.11)/22+0.11
=17.81%(Approx).
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