Picarello Corporation’s next annual dividend is expected to be $4.64 p

Picarello Corporation’s next annual dividend is expected to be $4.64 per share, to be issued one year from today. The firm anticipates the growth rate in dividends will be 4% annually for the foreseeable future.

If the current price is $51 per share, what is the required rate of return for the firm’s equity?
A) 13.46%
B) 13.10%
C) 8.44%
D) 16.27%

ANSWER

B
Explanation: B) r = D1/P + g = $4.64/$51 + .04 = 13.10%.