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Rubenstein Bros. Clothing is expecting to pay an annual dividend per share of $0.75\$ 0.75 out of annual earnings per share of $2.25\$ 2.25. Currently, Rubenstein Bros.' stock is selling for $12.50\$ 12.50 per share. Adhering to the company's target capital structure, the firm has $10\$ 10 million in total invested capital, of which 40%40 \% is funded by debt. Assume that the firm's book value of equity equals its market value. In past years, the firm has earned a return on equity (ROE) of 18%18 \%, which is expected to continue this year and into the foreseeable future.

What is the stock's required return?


Answered 10 months ago
Answered 10 months ago
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In this exercise, we will compute the stock's required return.

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