The next dividend payment by Im, Incorporated, will be $1.96 per share. The dividends are anticipated to maintain a growth rate of 4 percent forever. If the stock currently sells for $39 per share, what is the required return?
Question
The next dividend payment by Im, Incorporated, will be 39 per share, what is the required return?
Solution
To find the required return, we can use the Gordon Growth Model. The Gordon Growth Model is given by the formula:
Required Return = Dividend / Stock Price + Growth Rate
Given that the dividend payment is $1.96 per share and the growth rate is 4 percent, we can substitute these values into the formula:
Required Return = 39 + 0.04
Simplifying this equation, we get:
Required Return = 0.05 + 0.04
Required Return = 0.09
Therefore, the required return for Im, Incorporated's stock is 9 percent.
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