Arts and crafts will pay a divided of $5 per share in 1 year. It sells at $50 a share, and firms in the same industry provide an expected rate of return of 15%. What must be the expected growth rate of the company's dividends?
Arts and crafts will pay a divided of $5 per share in 1 year. It sells at $50 a share, and firms in the same industry provide an expected rate of return of 15%. What must be the expected growth rate of the company's dividends?
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 12P
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Arts and crafts will pay a divided of $5 per share in 1 year. It sells at $50 a share, and firms in the same industry provide an expected
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Step 1
As per dividend discount model,
Price of stock = Dividend at the end of year 1 /(expected return - growth rate)
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