To determine the required return for Manta Energy's stock, we can use the Dividend Discount Model (DDM), specifically the Gordon Growth Model. The formula is:

$r = \frac{D_1}{P_0} + g$

where:

• $r$ = required return
• $D_1$ = expected dividend next year
• $P_0$ = current stock price
• $g$ = growth rate of dividends

Step 1: Identify the values

• Current dividend ($D_0$) for Manta Energy: $0.98
• Current stock price ($P_0$): $15.61
• Dividend growth rate ($g$): -13% or -0.13

Step 2: Calculate the expected dividend ($D_1$)

$D_1 = D_0 \times (1 + g)$

$D_1 = 0.98 \times (1 - 0.13)$

$D_1 = 0.98 \times 0.87 = 0.8526$

Step 3: Use the Gordon Growth Model

$r = \frac{0.8526}{15.61} - 0.13$

$r = 0.05463 - 0.13$

$r = -0.07537 \text{ or } -7.54\%$

Conclusion

The required return for Manta Energy's stock, given the continued negative dividend growth rate, is:

$\boxed{-7.54\%}$

Would you like more details or have any questions about this process?

Related Questions

1. How does a negative dividend growth rate affect the stock's required return?
2. What other models can be used to determine the required return if dividends are not consistent?
3. Can a stock still be considered a good investment if the required return is negative?
4. How do changes in the dividend yield impact the required return?
5. What assumptions does the Gordon Growth Model rely on, and how can they limit its application?

Tip

The Gordon Growth Model is most effective for companies with stable dividend growth rates. For firms with irregular dividends, consider other valuation models.