Ask Question
4 August, 12:35

MCMC just paid a dividend of $4.10 and is expected to increase the future dividends at a rate of 4% per year indefinitely. If the current share price is $40, what is the return required by shareholders?

a.) 12.65%

b.) 13.52%

c.) 13.99%

d.) 14.66%

e.) None of the above

+1
Answers (1)
  1. 4 August, 12:50
    0
    d.) 14.66%

    Explanation:

    The computation of the return required by shareholders is shown below:

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

    where,

    Next year dividend would be

    = $4.10 + $4.10 * 0.04

    = $4.10 + 0.164

    = $4.264

    So, the return required by shareholders

    $40 = $4.264 : (Required rate of return - 4%)

    After solving this equation,

    The required rate of return is 14.66%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “MCMC just paid a dividend of $4.10 and is expected to increase the future dividends at a rate of 4% per year indefinitely. If the current ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers