ChatterBank2 mins ago
What is X?
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Montana Motors' stock has a required return of 13% and the stock sells for %50 per share. the year-end dividend,D1, is expected to be $1 per share. after this payment the dividend is expected to grow by 30% per year for the next 3 years, so D4=$1(1.25)3= 1.953125. After t=4 the dividend is expected to grow at a constant rate of X% per year forever. what is the stock's expected constant growth rate after t=4 i.e what is X?
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It's the rate of growth of dividends which you need to calculate using your lecture notes and text books.
I think your question may be wrong. Yes your calculation
D4= $1(1.25)� does equal 1.953125. But this calculation uses a dividend growth rate of 25% p.a. whereas your question says the growth rate is 30% p.a.
I think your question may be wrong. Yes your calculation
D4= $1(1.25)� does equal 1.953125. But this calculation uses a dividend growth rate of 25% p.a. whereas your question says the growth rate is 30% p.a.
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