Question
Download Solution PDFThe current market price of a company's share is Rs. 90 and the expected dividend per share next year is Rs. 4.5. If the dividend is expected to grow at a constant rate of 8%, the shareholder's required rate of return will be
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe required rate of return is the minimum return an investor will accept for owning a company's stock, as compensation for a given level of risk associated with holding the stock. The RRR is also used in corporate finance to analyze the profitability of potential investment projects.
Shareholder's Required Return = (D1/P0 * 100) + G
Where, D1 = Expected Dividend For Next Year
P0 = Current Market Price Of Share
G = Growth Rate
Shareholder's Required Return = (4.5/90 * 100) + 8 = 5 + 8 = 13%
Therefore, if the current market price of a company's share is Rs. 90 and the expected dividend per share next year is Rs. 4.5. If the dividend is expected to grow at a constant rate of 8%, the shareholder's required rate of return will be 13%.
Last updated on Jun 12, 2025
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