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    RLopez24's Avatar
    RLopez24 Posts: 1, Reputation: 1
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    #1

    Oct 6, 2009, 03:55 PM
    Stock Values
    The next dividend payment by Carroll, Inc. will be $1.90 per share. The dividendsare anticipated to maintaina 5.5 percent prowth rate, forever. If the stock currently sells for $47.00 per share, what is the required return?
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #2

    Oct 7, 2009, 05:25 AM
    Use the Gordon-Shapiro model...



    ... where P is the current stock price; is the expected dividend one period away; g is the expected constant dividend growth rate, and r is the required return (aka market cap rate). In your case you'll solve for r.
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