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Mccracken roofing, inc., common stock paid a dividend of $1.20 per share last year. the company expects earnings and dividends to grow at a rate of 5% per year for the foreseeable future. what required rate of return for the stock would result in a price of $28 per share?
a. 10.0%
b. 10.5%
c. 9%
d. 9.5%

Respuesta :

W0lf93
The correct answer is d. 9.5%. Please find the explanation below  
D1 = dividend = Current div (1 + g) 
Value = D1 (r-g), required rate of return = growth rate 
D (1 = G)/(r-g) 
$28 = 1.20(1.05)/(r- 0.05) 
28 = 1.26/x 
28 x = 1.26 
X = 0.045 and x = (r – 0.05) 
0.045 = r-0.05 
r = 0.095 or 9.5%

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