P0 = D0*(1+g) / ( r - g ) | |
Here, | |
P0 = Current value of stock = 68.09 | |
D0 = Current dividend = 3.50 | |
g = Growth rate | |
r = Required cost of capital = 12.5% | |
Now let us put these figures in the above equation to find out required return. | |
68.09 = 3.50*(1+g) / (12.5%-g) | |
68.09 / 3.50 = (1+g) / (12.5%-g) | |
19.45 = (1+g) / (12.5%-g) | |
19.45*(12.5%-g) = (1+g) | |
(19.45*12.5%)-19.45g = (1+g) | |
2.43 - 19.45g = 1+g | |
g + 19.45g = 2.43 - 1 | |
20.45g = 1.43 | |
g = 1.43/20.45 | 7.0% |
how we get 7.0 , which is the growth rate. Questions 18B-19B are based on the...
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