Asked Nov 23, 2019

Circuit City Stores (CC) recently paid a $.24 dividend. The dividend is expected to grow at a 23.80 percent rate. At the current stock price of $8.76, what is the return shareholders are expecting?


Expert Answer

Step 1

Given that the recent dividend is $.24, current stock price is $8.76 and the dividend is expected to grow at a 23.80%
Suppose D1 be the dividend in year 1, P0 be the current share price and g be the growth rate. 

Step 2

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D1 (.24)x(1+23.80%)-0.29712 Return (D1) (PO)+g >Return (0.29712) (8.76)+23.8% -0.0339178+23.8% 0.2719 or 27.19%


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