What Is the Expected Constant Growth Rate of Dividends for a Stock

question 92

Multiple Choice

What is the expected constant growth rate of dividends for a stock currently priced at $50, that just paid a dividend of $4, and has a required return of 18 percent?

• A)3.41 percent
• B)5.50 percent
• C)9.26 percent
• D)12.5 percent $50 = $4(1 + g)/(.18 - g)

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Definitions:

Negotiated Price

The final price at which a transaction is made between buyer and seller after discussion and agreement.

Investment Center Performance

Involves the evaluation of a business unit's effectiveness in generating profits and efficiently managing its capital investments.

Return on Investment

A measure used to evaluate the efficiency or profitability of an investment, calculated by dividing net profit by the cost of the investment.

Investment Turnover

A ratio that measures the efficiency of a company in generating sales or revenues from its investment in assets.