Beaver corporation stock is currently selling for $58.00. it is expected to pay a dividend of $5.00 at the end of the year. dividends are expected to grow at a constant rate of 7.5% indefinitely. compute the required rate of return on beaver corporation stock.

Rate of return = 16.77%

Explanation:

given data

currently stock price P = $58.00

expected dividend D = $5.00

growth rate G = 7.5% = 0.075

to find out

rate of return

solution

we will apply here dividend formula that is

D1 =  D (1+G)     ..............1

here D is expected dividend and G is growth rate

so here

D1 = 5 (1+ 0.075)

D1 = 5.375

so here required rate of return on Beaver Corporation stock is

rate of return =  + G  ................2

here P is currently stock price

so

rate of return =  + 0.075

rate of return = 0.1677

so

Rate of return = 16.77%

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