You’ve collected the following information from your favorite financial website.
ID: 2823191 • Letter: Y
Question
You’ve collected the following information from your favorite financial website.
According to your research, the growth rate in dividends for Palm Coal for the previous 10 years has been 4.25 percent.
If investors feel this growth rate will continue, what is the required return for Palm Coal stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Required return %
Yld % PE
Ratio Close
Price Net
Chg Hi Lo 77.7 10.46 Palm Coal .39 2.7 6 14.20 –.24 55.81 33.42 Lake Lead Grp 1.54 3.8 10 40.43 –.01 130.93 69.50 SIR 2.00 2.2 10 88.97 3.07 50.24 13.95 DR Dime .80 5.2 6 15.43 –.26 35.00 20.74 Candy Galore .32 1.5 28 ?? .18
Explanation / Answer
the required return for Palm Coal stock = 0.39*1.0425/14.20 + 4.25%
the required return for Palm Coal stock = 7.11%
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