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Mrac [35]
3 years ago
6

The Lory Company had net earnings of $127,000 this past year. Dividends of $38,100 were paid. The company's equity was $1,587,50

0. If Lory has 100,000 shares outstanding with a current market price of $11.625 per share, and a dividend growth rate is 5.6%, what is the firm’s discount rate?
Business
1 answer:
dexar [7]3 years ago
3 0

Answer:

<em>Rate = 9.05%</em>

Explanation:

<em>To calculate the Dividend per share we'll have to </em>

= Total Dividends Paid / Total Shares

= 38,100/100,000

<em>= 0.38  Dividend per share</em>

<em />

So, if we are to be using the <em>constant Growth Model, </em>

P=  \frac{D_{1}}{r-g}

P = Price of Stock

D_{1} = Estimated Dividends for next period

r = Required rate of return

g = Growth Rate

11.625 = 0.38(1.056)/(r - 0.056)

<em>r = 9.05%</em>

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