Crinkle Company is expected to maintain a constant 4.1 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 3.9 percent, what is the required return on the company’s stock?Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.Blank.xlsx

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BlackTom AI · Accepted Answer

Consider Crinkle Company's dividend behavior as a perpetuity with growth. The dividend yield is defined as D1/P0, where D1 is the dividend next year and P0 is the current stock price. For a stock with constant growth g, the required return r is linked to the dividend yield by r = (D1/P0) + g, since D1/P0 = r - g.

Here, the given dividend yield is 3.9% (D1/P0 = 0.039) and the growth rate is 4.1% (g = 0.041). Add these two components to obtain the required return: 0.039 + 0.041 = 0.080.

Therefore, the required return on the stock is 0.080, which as a percentage is 8.00%.

To summarize the logic in steps: recognize the Gordon growth framework, relate D1/P0 to r - g, substitute the provided values, and sum to find r.

Note: This result aligns with the formula r = g + dividend yield, confirming the intuitive idea that the return comprises both growth in dividends and the income from those dividends today.

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Company ABC’s ordinary shares are currently selling at​ $24.00 per share. The company is expected to pay a dividend of​ $1.92 per share, which is predicted to grow at ​ 4% per annum forever. What is the​ share's expected rate of​ return?

Company ABC’s ordinary shares are currently selling at​ $24.00 per share. The company is expected to pay a dividend of​ $1.92 per share, which is predicted to grow at ​ 4% per annum forever. What is the​ share's expected rate of​ return?

Is the following statement true or false? Déjà vu’ just paid a cash dividend of $0.20 per share. Investors require a 16% return from investments such as this. If the dividend is expected to grow at a steady 8% per year. The share will be worth $2.70 in five years?[Fill in the blank]

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Making Your Study Simpler

Company ABC’s ordinary shares are currently selling at $24.00 per share. The company is expected to pay a dividend of $1.92 per share, which is predicted to grow at 4% per annum forever. What is the share's expected rate of return?

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