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Ira Lisetskai [31]
3 years ago
10

Taggart transcontinental has a dividend yield of 2.5% .Taggarts equity cost of capital is 10% and its dividends are expected to

grow at a constant rate. Based on this information taggarts constant growth rate in dividends is closest to :
A)5%
B)2.5%
C)10%
D)7.5%
Mathematics
1 answer:
Arisa [49]3 years ago
8 0

Answer:

D) 7.5%

Step-by-step explanation:

Using dividend growth model,

Price, P = D / (r - g)

where, D = Dividend, r = cost of equity = 10% ,  and g= growth rate

we know that

=> r - g = D / P = Dividend yield = 2.5%

=> Growth rate, g = 10% - 2.5% = 7.5%

therefore the  constant growth rate in dividends is closest to= 7.5%

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