(Common stock valuation) Abercrombie & Fitch's common stock pays a dividend of $1.25. It is currently...

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(Common stock valuation) Abercrombie & Fitchs common stock pays a dividend of $1.25. It is currently selling for $36. 12. If

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Answer 1

Answer #1

The growth rate is computed as shown below:

Current stock price = Dividend ( 1 + growth rate ) / ( required rate of return - growth rate )

Current stock price = $ 36.12

Dividend = $ 1.25

required rate of return = 8% or 0.08

Plugging these values in the above mentioned formula, we shall get:

$ 36.12 = $ 1.25 ( 1 + growth rate ) / ( 0.08 - growth rate )

growth rate = 4.39% Approximately

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Answer 2

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