The stock of Music City Inc. is selling for $37.50. The firm recently paid a dividend...
The stock of Music City Inc. is selling for $37.50. The firm recently paid a dividend of $1.10. What is its implied constant growth rate if the market return is 14 percent?
11.07%
11.4%
10.75%
14.0%
Homework Answers
Ans 11.07%
| P0 = | Price of Share |
| D1 = | Current Dividend |
| Ke = | Cost of Equity |
| g = | growth rate |
| P0 = | D1 / (Ke - g) |
| 37.50 = | 1.10 / (14%- g) |
| 14% - g = | 1.10 / 37.50 |
| 14% - g = | 2.93% |
| g = | 14% - 2.93% |
| g = | 11.07% |
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