Garage, Inc: What is the required return on company stock. Show formula.

Garage, Inc., is expected to maintain a constant 5 percent growth rate in its dividends, indefinitely. If the company has a dividend yield of 7.5 percent, what is the required return on the company's stock?

What is the formula to solve this?

© SolutionLibrary Inc. 9836dcf9d7

Solution Preview

...e stock at time 0
(r - g) D1 = dividend payment for time 1 ie. 7.5%of P0
r = required return
g = growth rate of 5%


? Price of stock ...