Question

**General Gabardine Inc. last year paid a dividend of
$3.38 per share of common stock. The dividends are anticipated to
maintain an annual growth rate of 4.82% forever. If the stock
currently sells for $46.72, what is the required return
?**

Answer #1

**As per Constant Dividen Model'**

**Intrinisc Value of Share = D1 /( Re
-g)**

**Were: D1 Stands for Next Dividend = 3.38 + 4.82% of
3.38, ie last year dividend plus the growth rate**

**Re stands for Required rate of return which we have
to determine**

**g stands for growth rate**

**Intrinsic Value (IV) = 46.72 = [3.38+(3.38 x 4.82%)]
/ Re -0.0482**

**46.72 = 3.543 /(Re -0.0482)**

**46.72Re -2.252 =3.543**

**Re = 12.404%**

**There fore the Required return = 12.404%**

**Answers are rounded of to decimals**

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