In Example 8-2, we valued Nike at $80, given your required rate of return of 15 percent. This answer was based on an anticipated growth rate of 13.6 percent. Also, the stock was expected to pay a $1.12 dividend. The stock was actually selling for $90 at the time. What would be the expected rate of return for investors purchasing the stock at the current price of $90?

Data from Example 8-2

During 2014, Nike’s common stock had been selling for between $73 and $96. Most recently, it was selling at $90 per share. Its most recent earnings per share was $3.50, and the firm was expected to pay a dividend of $1.12. The company’s return on equity (net income ÷ total common equity) has been 20 percent. You are planning on investing in 100 shares of the stock, but you want a 15 percent return on your investment. Given the limited information, what growth rate would you estimate for Nike? What minimum price would be required for you to earn your required return?