Kwik Industries is expected to pay a dividend of $1.25 per share at the end of t

Question

Kwik Industries is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $32.50 per share, and it's 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? (Please show work)
A) 3.85% B) 4.93% C) 5.39% D) 6.65% E) 14.35% Kwik Industries is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $32.50 per share, and it's 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? (Please show work)
A) 3.85% B) 4.93% C) 5.39% D) 6.65% E) 14.35%
A) 3.85% B) 4.93% C) 5.39% D) 6.65% E) 14.35%

Explanation / Answer

P = D / (k – g)

$32.50 = $1.25 / (0.105 – g)

3.4125 – 32.5g = 1.25

2.1625 = 32.5g

g = 0.066538 = 6.65 %

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