Question

Tangshan China​ Company's stock is currently selling for​ $80.00 per share. The expected dividend one year from now is​ $4.00 and the required return is 13 percent. What is​ Tangshan's dividend growth rate assuming that dividends are expected to grow at a constant rate​ forever?

Answer 1

Tangshan's dividend growth rate is 8% assuming that dividends are expected to grow at a constant rate​ forever.

Step-by-step explanation:

P0 = $80.00

D1 = $4.00

Re = 0.13

The Growth rate (g) is given by:

P0 = D1/(Re - g)

80 = 4/(0.13 - g)

g = 0.08

Therefore, Tangshan's dividend growth rate is 8% assuming that dividends are expected to grow at a constant rate​ forever.