Use the Constant Dividend Growth Model to determine the expected annual growth rate of the dividend for ELO stock. The firm is expected to pay an annual divided of $15.85 per share in one year. ELO shares are currently trading for $238.35 on the NYSE, and the expected annual rate of return for ELO shares is 11.11%. Answer as a % to 2 decimal places (e.g., 12.34% as 12.34).
Given:
Expected annual dividend in one year (D1)= $15.85 per
share
Currently trading Price (Po) = $238.35
Expected annual rate of return (ke) = 11.11%
Calculation of expected annual growth rate of the dividend for ELO stock
Constant Dividend Growth Model Formula
Po = D1 / (Ke - g)
Where, Po = Current Price
D1 = Dividend next year
ke = Required rate of Return
g = Dividend Growth rate
$238.35 = $15.85 ( 0.1111 - g)
238.35(0.1111 - g) = 15.85
26.480685 - 238.35g = 15.85
238.35g = 10.630685
g = 0.044601 or 4.46%
Expected annual growth rate of the dividend for ELO stock = 4.46%
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