Widgets Inc common shares are currently trading for $68.25 and the company paid its annual dividend...
Widgets Inc common shares are currently trading for $68.25 and the company paid its annual dividend of $1.10 per share. If your required rate of return is 8%, what is the implied growth rate in dividends? (Assume that dividends are expected to grow at a constant rate in perpetuity)
Homework Answers
r = [D0 x (1 + g) / P0] + g
0.08 = [$1.10 x (1 + g) / $68.25] + g
0.08 = [0.0161 x (1 + g)] + g
0.08 = 0.0161 + 0.0161g + g
0.0639 = 1.0161g
g = 0.0639 / 1.0161 = 0.0629, or 6.29%
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