Calculating the Required Return for IM, Inc. Stock

What is the required return on IM, Inc. stock?

If the stock is currently priced at $37 per share and is expected to pay a dividend of $1.87 per share with a 4.3 percent growth rate, what is the required return?

Answer:

The required return for IM, Inc. stock is calculated to be 9.35%. However, none of the provided answer choices matches this value, suggesting a possible error in the options.

To calculate the required return on a stock using the Gordon Growth Model, we need to add the dividend yield and the growth rate. The dividend yield is the annual dividend per share divided by the current price of the stock.

For IM, Inc., the calculation would be as follows:

Required return = (D1/P0) + g

where D1 is the expected dividend per share, P0 is the current price per share, and g is the growth rate.

Plugging in the values for IM, Inc.:

Required return = ($1.87 / $37) + 4.3%

Required return = 5.05% + 4.3%

Required return = 9.35%

Since none of the answer choices provided match the calculated required return of 9.35%, it indicates a discrepancy in the options given.