Rubenstein Bros. Clothing is expecting to pay an annual dividend per share of $1

Question

Rubenstein Bros. Clothing is expecting to pay an annual dividend per share of $1 out of annual earnings per share of $3.25. Currently, Rubenstein Bros.' stock is selling for $28.50 per share. Adhering to the company's target capital structure, the firm has $6 million in assets, of which 50% is funded by debt. Assume that the firm's book value of equity equals its market value. In past years, the firm has earned a return on equity (ROE) of 13%, which is expected to continue this year and into the foreseeable future. a. What is the stock's required return? Round your answer to two decimal places. Do not round intermediate calculations. ________ %

Explanation / Answer

a) required rate of return =
risk free rate + beta (expected market return - risk free rate)

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