Juggernaut Satellite Corporation earned $ 10 million for the fiscal year ending yesterday. The firm also paid out 20% of its earnings as dividends yesterday. The firm will continue to pay out 20% of its earnings as annual, end-of year dividends. The remaining 80 percent of earnings is retained by the company for use in projects.
The company has 2 million shares of common stock outstanding. The current stock price is $85. The historical return on equity (ROE) of 16 percent is expected to continue in the future.
What is the required rate of return on the stock?