Finding the Required Return Juggernaut Satellite Corporation earned $10 million for the fiscal year ending yesterday. The firm also paid out 25 percent of its earnings as dividends yesterday. The firm will continue to pay out 25 percent of its earnings as annual, end-of-year dividends. The remaining 75 percent of earnings is retained by the company for use in projects.

The company has 1.25 million shares of common stock outstanding. The current stock price is

$40. The historical return on equity (ROE) of 11 percent is expected to continue in the future.

What is the required rate of return on the stock? LO.1