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23 October, 16:12

The next dividend payment by Savitz, Inc., will be $1.72 per share. The dividends are anticipated to maintain a growth rate of 4 percent forever. If the stock currently sells for $33 per share, what is the required return

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  1. 23 October, 16:35
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    9.21%

    Explanation:

    To calculate this, we use the formula for the dividend discount model as follows:

    P = D / (r - g) ... (1)

    Where,

    P = current stock price = $33

    D = Next dividend = $1.72

    r = required return = ?

    g = growth rate = 4% = 0.04

    Substituting the values into equation (1) and solve for r, we have:

    33 = 1.72 / (r - 0.04)

    33 (r - 0.04) = 1.72

    33r - 1.32 = 1.72

    33r = 1.72 + 1.32

    33r = 3.04

    r = 3.04/33

    r = 0.0921, or 9.21%
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