Fuller Corp.stock just paid a dividend of $3.12.Fuller's dividend growth rate has averaged 3% historically,and Fuller stock currently sells for $25.What is the required return on equity?

Question

Quizplus · Accepted Answer

Step 1 - Calculate the next dividend payment.
3.12 × (1.03) = $3.2136
Step 2 - Use the Gordon Model to solve for the required return. 11ea7fdb_fbf9_5c60_a768_c35794e9c328_TB2902_11 = 11ea7fdb_fbf9_5c61_a768_edad74277f98_TB2902_11 25 = 11ea7fdb_fbf9_5c62_a768_677c86206563_TB2902_11 25k - .75 = 3.2136
25k = 3.9636
k = .158 or 16%