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Expected Return American Eagle Outfitters (AEO) recently paid a $.42 dividend. The dividend is expected to grow at a 15.90 percent rate. At the current stock price of $24.47, what is the return shareholders are expecting?

Respuesta :

Answer:

17.89%

Explanation:

according to the constant dividend growth model

price = d1 / (r - g)

d1 = next dividend to be paid

r = cost of equity

g = growth rate

24.47 = (0.42 x 1.1590) / (r - 0.1590)

24.47 x (r - 0.1590) = 0.487

(r - 0.1590) =0.01989

r = 0.1789 = 17.89%

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