Which of the following is true for a firm having a stock price of $42,an expected dividend of $3,and a sustainable growth rate of 8%?
A) It has a required return of 15.14%.
B) It has a dividend payout ratio of 37.5%.
C) It has an ROE of 7.14%.
D) It has a plowback rate of 7.14%.

Question

Quizplus · Accepted Answer

The required return can be calculated using the constant growth model, which is: 
Required return = (Dividend / Price) + Growth Rate 
Required return = (3 / 42) + 0.08 
Required return = 0.1514 or 15.14%

B, C, and D cannot be calculated based on the information provided.

Which of the Following Is True for a Firm Having