Adequate information: Dividend per share for the current year (D 0 ) = $2.95 Require rate of return (R) = 13% Dividend growth rate in Year 1 (g 1 ) = 20% Dividend growth rate in Year 2 (g 2 ) = 15% Dividend growth rate in Year 3 (g 3 ) = 10% Dividend growth rate in Year 4 (g 4 ) = 5% To determine: The required return that the investors must demand on the company’s stock. Introduction: The dividend growth model computes the stock price with the help of the growth rate, required rate, and dividend for the next period.

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Chapter 9, Problem 32QAP

Summary Introduction

Adequate information:

Dividend per share for the current year (D₀) = $2.95

Require rate of return (R) = 13%

Dividend growth rate in Year 1 (g₁) = 20%

Dividend growth rate in Year 2 (g₂) = 15%

Dividend growth rate in Year 3 (g₃) = 10%

Dividend growth rate in Year 4 (g₄) = 5%

To determine: The required return that the investors must demand on the company’s stock.

Introduction: The dividend growth model computes the stock price with the help of the growth rate, required rate, and dividend for the next period.

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