1 answer

Problem 7-10 Growth Rates [LO 1] The stock price of Baskett Co. is $54.30. Investors require...

Question:

Problem 7-10 Growth Rates [LO 1]

The stock price of Baskett Co. is $54.30. Investors require a return of 13 percent on similar stocks.

If the company plans to pay a dividend of $3.80 next year, what growth rate is expected for the company’s stock price? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Growth rate             %


Answers

Required return = (dividend next year/stock price) + growth rate

0.13 = ($3.80/$54.30) + growth rate

0.13 = 0.0699815837937385 + growth rate

growth rate = 0.13 - 0.0699815837937385 = 0.0600184162062615 or 6.00%

Growth rate is 6.00%.

.

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