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Jand, Inc., currently pays a dividend of $1.32, which is expected to grow indefinitely at 4%. If the current value of Jand’s shares based on the constant-growth dividend discount model is $33.16, what is the required rate of return?

Respuesta :

mltn1980

Answer:

  • What is the required rate of return?

       8%

Explanation:

The dividend discount model state that the price of a stock should be the result of the Present Value of all of its future dividends, the Gordon growth model indicates that:  

Price per Share = D / (r - g) Where:  

D = the estimated value of next year's dividend  

r = The required rate of return  

g = the constant growth rate  

Expressed in values is:

Share = D / (r - g)  ==> $33,16 = $1,32 / (r-0,04)  

$33,16 (r-0,04) = $1,32  

r-0,04 = 1,32/33,16  

r-0,04 = 0,0398  

r = 0,0398 + 0,04  = 0,0798

r = 8%

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