Required return on equity, Financial Accounting

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Q. Required return on equity?

Required return on equity

2435_Required return on equity.png

Where D1 = Next year's dividend

g = Dividend growth rate

Po = Market price of share

r = Percentage required return

g = 4√ (12/8) - 1

= 0·1067 or 11%

D1 = 12 × 1·11

= 13·32 cents i.e. 13 cents

R = (13/160+ 0.11) × 100

= 19·125%


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