A firm plans to pay an annual dividend of $0.48 next year. Dividends and earning

Question

A firm plans to pay an annual dividend of $0.48 next year. Dividends and earnings have been growing at a compound annual rate of 8 percent and are expected to continue growing at that rate. What is an investor's required rate of return on the firm

A firm plans to pay an annual dividend of $0.48 next year. Dividends and earnings have been growing at a compound annual rate of 8 percent and are expected to continue growing at that rate. What is an investor's required rate of return on the firm's common equity if the current price of its stock is $12 per share

Explanation / Answer

12= 0.48/(x-0.08)

12x-0.96=0.48

x=0.12

x=12%=investor required rate of return

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