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Franklin Corporation is expected to pay a dividend of $1.25 per share at the end of the year (D 1 = $1.25). The stock sells for $32.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate

Respuesta :

Answer:

0.0374/3.74%

Explanation:

D1=1.25, Stock price=$32.50, RRR=10.5%, g=?

Using the dividend discount model

stock price =expected dividend/RRR-growth rate

substituting

32.50=1.25/(0.105-g)  cross multiply

32.50(0.105-g)=1.25

0.0341-32.50g=1.25

32.5g=1.2159

32.5g/32.5=1.2159/32.5

g=0.0374/3.74%

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