The next dividend payment by Halestorm, Inc., will be $1.64 per share. The dividends are anticipated to maintain a growth rate of 8 percent forever. If the stock currently sells for $31 per share, what is the required return?

Problem 8-2 Stock Values [LO1]

The next dividend payment by Halestorm, Inc., will be $1.64 per share. The dividends are anticipated to maintain a growth rate of 8 percent forever. If the stock currently sells for $31 per share, what is the required return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Required return

%

 

Explanation:

We need to find the required return of the stock. Using the constant growth model, we can solve the equation for R. Doing so, we find:

R = (D1 / P0) + g

R = ($1.64 / $31) + .08

R = .1329, or 13.29%