9. Alabaman Energy Corp’s common stock paid $1.00 dividend last year and dividends are expected to...
9.
Alabaman Energy Corp’s common stock paid $1.00 dividend last year and dividends are expected to grow at a constant rate for the foreseeable future. If the stock’s value is currently $22 and the investors’ required rate of return on the stock is 15 percent, what is the growth rate projected?
5.0 percent
15.0 percent
12.5 percent
7.5 percent
10.0 percent
Homework Answers
Required return=(D1/Current price)+Growth rate
0.15=(1*(1+Growth Rate)/22+Growth Rate
0.15=(1+Growth Rate)/22+Growth Rate
0.15=0.04545+0.04545*Growth Rate+Growth Rate
Growth Rate=(0.15-0.04545)/(1+0.04545)
=10%
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