What is the pretax required return on gordon stock

Assignment Help Financial Management

Reference no: EM132020505

The Gecko Company and the Gordon Company are two firms whose business risk is the same but that have different dividend policies. Gecko pays no dividend, whereas Gordon has an expected dividend yield of 5 percent. Suppose the capital gains tax rate is zero, whereas the income tax rate is 30 percent. Gecko has an expected earnings growth rate of 11 percent annually, and its stock price is expected to grow at this same rate.

If the aftertax expected returns on the two stocks are equal (because they are in the same risk class), what is the pretax required return on Gordon’s stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Pretax return %

Reference no: EM132020505

Questions Cloud

What is the capitalized equivalent cost of this investment : what is the capitalized equivalent cost of this investment at the rate of 13.3%? Enter your answer as a positive number."

Why does australia have a small bond market : Why does Australia have a small bond market? Do you think that this will this change in the future?

Correct strategy to hedge its interest rate exposure : Which of the following is a correct strategy to hedge its interest rate exposure?

Automate its payroll processing by using scanner : "A clothing retailer plans to automate its payroll processing by using a scanner that identifies which clerks sold which item.

What is the pretax required return on gordon stock : If the aftertax expected returns on the two stocks are equal (because they are in the same risk class), what is the pretax required return on Gordon’s stock?

What is the annual equivalent cost of the helicopter : What is the annual equivalent cost of the helicopter that the military should purchase if the interest rate is 9.5%?"

How many square feet of solar panels should be installed : Assuming the building owner wants to minimize the annual equivalent cost, how many square feet of solar panels should be installed?

Manage the short-financing needs of the organization : How does the organization “manage” the short-financing needs of the organization?

What is the project net present value : The cost of capital is 12 percent. What is the project’s net present value if the tax rate is 39 percent?

User Account

All Pages