Butler Corp paid a dividend of $3.50 per share. The dividend is expected to grow at a constant rate of 8% per year. If Butler Corp. Is selling for $75.60 per share, the stockholders' expected rate of return is _________
To calculate the stockholders' expected rate of return, you can use the Gordon Growth Model.
The formula for the Gordon Growth Model is:
Expected Rate of Return = (Dividend / Stock Price) + Dividend Growth Rate
Given that Butler Corp paid a dividend of $3.50 per share and the dividend is expected to grow at a constant rate of 8% per year, and the stock is selling for $75.60 per share, we can plug these values into the formula:
Expected Rate of Return = ($3.50 / $75.60) + 8%
Calculating:
Expected Rate of Return = 0.0462 + 0.08
Expected Rate of Return = 0.1262 or 12.62%
Therefore, the stockholders' expected rate of return is 12.62%.
To calculate the stockholders' expected rate of return, we can use the dividend growth model, also known as the Gordon growth model.
The formula for the Gordon growth model is:
Expected Rate of Return = (Dividend / Stock Price) + Dividend Growth Rate
In this case, the dividend is $3.50 per share, and the dividend growth rate is 8% per year. The stock price is $75.60 per share.
Let's plug these values into the formula:
Expected Rate of Return = ($3.50 / $75.60) + 0.08
To get the answer, we need to divide $3.50 by $75.60, and then add the dividend growth rate of 8%.