Priority Shift Ltd is expected to grow at a constant rate of 9 percent

Finance Sep 14, 2020

Priority Shift Ltd is expected to grow at a constant rate of 9 percent. If the company's next dividend is $2.75 and its current price is $37.35, what is the required rate of return on this share?

Expert Solution

Next Dividend ( D₁ ) = $ 2.75

Current Price of the stock ( P₀ ) = $ 37.35

Growth rate ( g ) = 9%

Current Price of the stock ( P₀ ) = D₁ / ( K_e - g )

37.35 = 2.75 / ( K_e - 0.09 )

( K_e - 0.09 ) = 2.75 / 37.35

K_e= 0.07362 + 0.09

K_e= 0.16362 or 16.36%

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