Suppose Universal Forest’s current stock price is $58.00 and it is likely to pay

Question

Suppose Universal Forest’s current stock price is $58.00 and it is likely to pay $.60 dividend next year. Since analysts estimate Universal Forest will have a 4.8% growth rate, what is its required return?
(Round your answer to two decimal places)
Required return _______ % Suppose Universal Forest’s current stock price is $58.00 and it is likely to pay $.60 dividend next year. Since analysts estimate Universal Forest will have a 4.8% growth rate, what is its required return?
(Round your answer to two decimal places)
Required return _______ %

Explanation / Answer

Assuming this dividend of 0.60 is a perpetuity, we get

58 = 0.6/(r - 4.8%)

=> r - 0.4.8% = 0.6/58

=> r = 0.01034 + 0.048

=> r = 0.05834

=> required rate of return = 5.83%  

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