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27 April, 20:12

The next dividend payment by Savitz, Inc., will be $1.68 per share. The dividends are anticipated to maintain a growth rate of 6 percent forever. If the stock currently sells for $32 per share, what is the required return

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  1. 27 April, 20:31
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    The answer is 11.25%

    Explanation:

    Solution

    Given that:

    The next step to take is to calculate the required rate of return which is shown below:

    The required rate = D₁/P₀₀ + g

    Thus,

    $1.68/$32 + 0.06%

    =0.0525 + 0.06

    =0.1125 or 11.25%

    Therefore, the required rate of return is 11.25%
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