Answered: Estimating the Market’s Expected Growth…

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter12: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 4FPE: The Castle Company recently reported net profits after taxes of $15.8 million. It has 2.5 million...

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Subject: accounting

Estimating the Market’s Expected Growth Rate in Dividends

Mattel, Inc. was trading at a price of $31.24 per common share at December 31, 2015. Using the Gordon growth model, estimate the market’s expected growth in dividends that is required to yield the $31.24 price per common share. Assume that the current dividend per share is $1.52 and is expected to grow thereafter, and that the cost of equity capital is 8.0%. (Hint: Use the equation for the dividend discount model with increasing perpetuity, at the top of page 12-20.)

Round answer to one decimal place (ex: 0.0235 = 2.4%).

Note: Assume current dividend per share is the dividend amount when the constant growth period begins.

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