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Paccar's current stock price is $75.10 and it is likely to pay a $3.29 dividend next year. Since analysts estimate Paccar will have a 14.2 percent growth rate, what is its required return? Multiple Choice 15.39 percent 17.94 percent 19.62 percent 18.58 percent

Respuesta :

Answer:

18.58 percent

Explanation:

Using the growth model formula we have

P₀ = [tex]\frac{D1}{Ke-g}[/tex]

Here P₀ = Current market price = $75.10

D₁ = Dividend at year end = $3.29

Ke = Expected return = to be calculated

g = Growth rate = 14.2%

$75.10 = [tex]\frac{3.29}{Ke - 0.142}[/tex]

Ke - 0.142 = [tex]\frac{3.29}{75.10}[/tex]

Ke - 0.142 = 0.0438

Ke = 0.0438 + 0.142 = 0.1858 = 18.58%

Required rate of return = 18.58%

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