The common stock of Wetmoreindustries is valued at 10.08 a share. The company increase their dividend by 3.5 percent annually and expects their next dividend to be $1.24. What is the required rate of return on this stock?
If you can explain me this problem your help will be really appreciated, thanks a lot...
2007-06-12 08:53:46 · 3 answers · asked by monse 2 in Business & Finance ➔ Investing
Required for what? The nominal rate of return is 1.24/10.08 + .035, or about 16%, which is a decent yield. For how long can the company keep this up? It requires a lot more than a few numbers to say, and if the company goes bankrupt in five years, the actual return on that $10.08 would be poor indeed.
2007-06-12 09:24:44 · answer #1 · answered by Anonymous · 0⤊ 0⤋
What's the symbol for his one?
Based on your info, the rate of return would be approx. 12.30%. (I divided the $1.24 by the share price of $10.08). This is not "required". It's merely the answer for your question today at this moment.
I suspect this is a stock that's dying on the vine. That could be the only reason the dividend is that high. If the stock drops by 50%....... the new dividend is 24.60%. High dividends like this are a warning sign to stay away from this company. However an absolute judgement can only be made after reviewing the charts and fundementals.
2007-06-12 16:06:25 · answer #2 · answered by Common Sense 7 · 0⤊ 0⤋
stangely i think i remember this exact question from an old finance textbook....
doing your homework????
i think it's asking for the Dividend Valuation method of equity valuation and there should be more to the question.. such as what the risk free rate is...
also how far out,,... how many dividend periods are you expecting to hold?
2007-06-12 17:22:23 · answer #3 · answered by Ryan S 3 · 0⤊ 0⤋