Question

Common stock value: Constant growth The common stock of Barr Labs Inc., trades for $121 per share. Investors expect the company to pay a (n)$1.39 dividend next year, and they expect that dividend to grow at a constant rate forever. If investors require a(n)15.9% return on this stock, what is the dividend growth rate that they are anticipating? The anticipated dividend growth rate is %. (Round to two decimal places.)

Answer 1

14.75%

Step-by-step explanation:

For a stock that pays dividends increasing dividends in perpetuity (forever)

`P=(D)/(i-g)`

p= price

d= dividend

i= interest rate

g= growth rate

We have everything but G (which is what we want to solve)

`121=(1.39)/(.159-g)\\(1.39)/(121)=.159-g\\g= 14.75`