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Vera_Pavlovna
1 day ago
9

Paccar's current stock price is $75.10 and it is likely to pay a $3.29 dividend next year. Since analysts estimate Paccar will h

ave a 14.2 percent growth rate, what is its required return? Multiple Choice 15.39 percent 17.94 percent 19.62 percent 18.58 percent
Business
1 answer:
Mariulka [3.4K]1 day ago
8 0

Answer:

18.58 percent

Explanation:

Applying the growth model formula yields

P₀ = \frac{D1}{Ke-g}

Here, P₀ = Current market price = $75.10

D₁ = Projected dividend for the year = $3.29

Ke = Expected return = to be determined

g = Growth rate = 14.2%

$75.10 = \frac{3.29}{Ke - 0.142}

Ke - 0.142 = \frac{3.29}{75.10}

Ke - 0.142 = 0.0438

Thus, Ke = 0.0438 + 0.142 = 0.1858 = 18.58%

The required rate of return is 18.58%

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