The next dividend payment by Hot Wings, Inc., will be $2.10 per share. The dividends are anticipated to maintain a 5 percent growth rate forever. If the stock currently sells for $48 per share, the required return is percent. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))
4.38
To find the required return, we can use the Gordon Growth Model, which is expressed as follows:
Required Return = (Dividend / Stock Price) + Dividend Growth Rate
Given:
Dividend = $2.10 per share
Stock Price = $48 per share
Dividend Growth Rate = 5%
Substituting the given values into the formula:
Required Return = (2.10 / 48) + 0.05
Calculating this expression:
Required Return = 0.04375 + 0.05
Required Return = 0.09375
Rounding the required return to two decimal places:
Required Return = 9.38
Therefore, the required return is 9.38 percent.
To find the required return, we can use the Gordon Growth Model, which is given by:
Required Return = (Dividend / Stock Price) + Growth Rate
In this case, the dividend is $2.10 per share, and the stock price is $48 per share. The growth rate is given as 5%, which we need to convert to decimal form (0.05).
Plugging the values into the formula:
Required Return = (2.10 / 48) + 0.05
Calculating this, we get:
Required Return = 0.04375 + 0.05
Required Return = 0.09375
Rounded to 2 decimal places, the required return is 9.38%.