share . Sally asked a number of security analysts what they believe FCE ' s future dividends will be , based on their analysis of the company . The consensus is that the dividend will be increased by 10 % during Years 1 to 3 , and it will be increased at a rate of 5 % per year in Year 4 and thereafter . Sally asked you to use that information to estimate the required rate of return on the stock , rs , and she provided you with the following template for use in the analysis .
Sally told you that the growth rates in the template were just put in as a trial , and that you must replace them with the analysts ' forecasted rates to get the correct forecasted dividends and then the estimated TV . She also notes that the estimated value for rs , at the top of the template , is also just a guess , and you must replace it with a value that will cause the Calculated Price shown at the bottom to equal the Actual Market Price . She suggests that , after you have put in the correct dividends , you can manually calculate the price , using a series of guesses as to the Estimated rs . The value of rs that causes the calculated price to equal the actual price is the correct one . She notes , though , that this trial-and-error process would be quite tedious , and that the correct rs could be found much faster with a simple Excel model , especially if you use Goal Seek . What is the value of rs ?
a . 11.84 % b . 12.21 % c . 12.58 % d . 12.97 % e . 13.36 %
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