Question

Question 16 1 pts The Phelps Company's common stock is currently trading for $25.50 per share. The stock is expected to pay a $2.80 dividend at the end of the year and the Phelps Company's equity cost of capital is 10%. If the dividend payout rate is expected to remain constant, then the expected growth rate in the Phelps Company's earnings is closest to - - 0 -1.96% 0 -1.47% 0 -0.98% 0 -0.49%

Answer 1

The correct option is C :: - 0.98%

Calculated using Gorden growth model:

Value of stock = expected dividend in the next period / (cost of equity - expected constant growth rate)

25.50 = 2.80 / (0.15 - Growth rate)   

hence the option C is growth rate of = - 0.98%