Question

Savickas Petroleum's stock has a required return of 12%, and the stock sells for $43 per share. The firm just paid a dividend of $1.00, and the dividend is expected to grow by 30% per year for the next 4 years, so D4 = $1.00(1.30)4 = $2.8561. 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?

Answer 1

Given Data:

The return = 12%

Stock price = $43/share

Dividend = $1.00

Growth rate = 30% per year

 D₄ = $1.00 × (1.30)⁴

      = $2.8561.

Stock's expected constant growth rate after t = 4 

Stock's expected constant growth rate:

                                                              X = 6.34%

Answer 2

Answer:

This question is missing options,which are as follows:

a.  

5.15%

b.  

6.78%

c.  

6.37%

d.  

5.49%

e.  

7.25%

The expected stock's constant growth rate after t=4 is 6.78%.which is the same as X.

The correct option is B

Explanation:

Kindly find attached excel file for detailed computation.

Download xlsx