Given the Information Below, Calculate the Expected Growth Rate (G) $P _ { 0 } = \frac { \tilde { D } _ { 1 } } { r _ { s } - g }$

question 64

Multiple Choice

Given the information below, calculate the expected growth rate (g) of dividends, using the constant growth model ,
$P _ { 0 } = \frac { \tilde { D } _ { 1 } } { r _ { s } - g }$ Beta = 1.75; rRF = 7 percent; rM = 11 percent; dividend payout ratio = 30 percent; rd = 10 percent (paid) on all long- term debt; P/E ratio = 10; sales = 5,000 units; sales price per unit = $5; variable cost per unit = $2; fixed cost =
$1,000; common stock shares outstanding = 5,000; long-term debt outstanding = $10,000; tax rate = 40 percent.Assume equilibrium exists in the market.

• A)11.34%
• B)6.54%
• C)11.0%
• D)10.68%
• E)10.19%

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Definitions:

Efficiency

The optimal use of resources to achieve the desired outcome with minimal waste or expense, often associated with productivity and economic contexts.

Welfare Economics

The branch of economics that focuses on the optimal allocation of resources and goods and how the allocation affects social welfare.

Equitable Outcome

An equitable outcome is a situation or result in economic transactions or distributions that is considered fair or just among all parties involved.

Contract Curve

In economics, a line on an Edgeworth box diagram representing the set of optimal allocations between two parties.