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Question
Given the information below, calculate the expected growth rate (g) of dividends, using the constant growth model
Beta = 1.75; rRF = 7 percent; rM = 11 percent; dividend payout ratio = 30 percent; rd = 10 percent (paid) on all long-term debt; P/E ratio = 10; sales = 5,000 units; sales price per unit = $5; variable cost per unit = $2; fixed cost = $1,000; common stock shares outstanding = 5,000; long-term debt outstanding = $10,000; tax rate = 40 percent. Assume equilibrium exists in the market.
a. 11.34%
b. 6.54%
c. 11.0%
d. 10.68%
e. 10.19%
Answer
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