Question

Use the dividend growth model to determine the required rate of return for equity. Your firm recently paid a dividend of $2.25 per share, has a recent price of $40.20 per share, and anticipates a growth rate in dividends of 3.00% per year for the foreseeable future.

Answer 1

Answer:

the required rate of return using the dividend growth model is 8.6%

Explanation:

The computation of the required rate of return using the dividend growth model is as follows;

The Required return is

= (Dividend at year 1 ÷ Current price per share) + Growth rate

= ($2.25 ÷ $40.2) + 0.03

= 8.6%

Hence, the required rate of return using the dividend growth model is 8.6%

We simply applied the given formula