grey manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1=$1.25). The stock sells fo $27.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?

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Asked Dec 6, 2019
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grey manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1=$1.25). The stock sells fo $27.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?

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Expert Answer

Step 1

Calculation of expected growth rate:

Hence, the expected growth rate is 5.95%.

 

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A Particulars Amount 2 Stock price 3 Expected dividend 27.5 1.25 4 Required return 10.50% 5 Expected growth rate 5.95%

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