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Anestetic [448]
2 years ago
11

Albright Motors is expected to pay a year-end dividend of $3.00 a share (D1 = $3.00). The stock currently sells for $30 a share.

The required (and expected) rate of return on the stock is 16 percent. If the dividend is expected to grow at a constant rate, g, what is g?
Business
1 answer:
Viefleur [7K]2 years ago
3 0

Answer: 14.4%

Explanation: The G that we are computing in this question is the sustainable growth rate, it is the growth rate that a company can attain and maintain without any problem.

we know that,

growth = (retention ratio)*(return on equity)

growth = (1- dividend payout ratio)*(return on equity)

growth\:=\:\left ( 1-\frac{3}{30} \right )*\left ( 0.16 \right )

growth = 14.4%

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