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The Sisyphean 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 Sisyphean Company's equity cost of capital (i.e., r) is 10%. What is the expected growth rate in the company's dividends

Respuesta :

anwar96iqbal

Answer:

-0.98%.

Explanation:

The Gordon Constant Growth Model will be used to find out the growth rate of the company's dividends. This model is used to value stocks of companies growing at a constant rate. The equation of this model is:

                                             Po = d1 / (r - g)

where

Po = Current Market Price of Stock

d1 = Dividend of Next Year or This Year End

r = Cost of Equity

g = growth rate of dividends

Simply re-arrange the equation for "g";

⇒ g = r - (d1 / Po)

OR g = 0.1 - (2.80 / 25.50) = -0.98%.

tanseershar

Answer:

   The answer is given below;

Explanation:

P=D(1+g)/(r-g)

P=$25.5

r=10%

D=$2.8

g=?

P=D(1+g0/(r-g)

25.5=2.8(1+g)/(.1-g)

25.5=2.8+2.8g/(.1-g)

25.5(.1-g)=2.8+2.8g

2.55-25.5g=2.8+2.8g

2.8-2.55=-25.5g-2.8g

-28.3g=.25

g=-.88%