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%
1 answer:
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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