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26 November, 02:45

Jand, Inc., currently pays a dividend of $1.24, which is expected to grow indefinitely at 5%. If the current value of Jand's shares based on the constant-growth dividend discount model is $30.16, what is the required rate of return?

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  1. 26 November, 02:55
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    9.32%

    Explanation:

    The formula to compute the required rate of return is shown below:

    Market price per share = Next year dividend : (Required rate of return - growth rate)

    where,

    Market price per share is $30.16

    Next year dividend is

    = $1.24 + $1.24 * 5%

    = $1.24 + 0.062

    = $1.302

    And, the growth rate is 5%

    So, the required rate of return is

    $30.16 = ($1.302) : (Required rate of return - 5%)

    Let us assume the required rate of return be X

    So,

    $30.16X - $1.508 = $1.302

    After solving this, the required rate of return is 9.32%
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