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Universal Forest's current stock price is $154.00 and it is likely to pay a $5.23 dividend next year. Since analysts estimate Universal Forest will have a 13.0 percent growth rate, what is its required return?
14.71 percent
15.28 percent
13.62 percent
16.40 percent

Respuesta :

opudodennis

Answer:

16.40 percent

Step-by-step explanation:

-The growth rate is given by the formula:

[tex]g=R-\frac{D_1}{P_O}[/tex]

Where

[tex]g[/tex] is the growth rate

[tex]R[/tex] is the required return

[tex]D_1, \ \ P_o[/tex] is the expected next dividend payout and current share prices respectively.

#We make R the subject of the formula and substitute to solve:

[tex]g=R+\frac{D_1}{P_o}\\\\R=g+\frac{D_1}{P_o}\\\\=0.13+\frac{5.23}{134}\\\\=0.1640\\\\=16.40\%[/tex]

Hence, the required return is 16.40%

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