venus sportswear corporation has preferred stock outstanding that pays a quarterly dividend of $2. it has a price of $100. what is the required rate of return on the preferred stock?

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24-10-2022
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venus sportswear corporation has preferred stock outstanding that pays a quarterly dividend of $2. it has a price of $100. what is the required rate of return on the preferred stock?

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tutorconsortium125 tutorconsortium125 · Answer 1 · 2022-11-06T09:39:48+01:00

8% is the required rate of return on the preferred stock. Divide next year's fixed dividend payment by the current stock value, and then add the result to the dividend's measured growth.

What is rate of return ?

The required rate of return, in general, refers to how much profit a company must have in order to pursue and complete a project or investment. This figure can include anything from machinery costs to the cost of a merger. In addition to risk and the overall health of the market, the required rate of return is calculated.

The required rate of return (RRR) is the minimum return an investor will accept for owning a company's stock in exchange for a certain level of risk. In corporate finance, the RRR is used to assess the profitability of potential investment projects.

The dividend-discount model computes the RRR for equity of a dividend-paying stock using the current stock price, dividend payment per share, and dividend growth rate forecast.

RRR = (Expected dividend payment / Share Price) + Forecasted dividend growth rate

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