Lac Superior Enterprises has just paid a dividend of $1.05 and will pay $1.10 next year.Dividends are expected to grow at a constant rate indefinitely.What is the required rate of return if the share is selling for $30 today?

Question

Quizplus · Accepted Answer

Using the Gordon Growth Model,
$$
\begin{aligned} P_{0}&=\frac{D_{1}}{r-g} \ 30&=\frac{1.10}{r-0.05} \ r &= \frac{1.10}{30}+0.05 \ r &\approx8.43\% \end{aligned}
$$
Thus, the answer is choice (B), 8.43%.

Lac Superior Enterprises Has Just Paid a Dividend of $1