Question

The common stock of Kyocera currently sells for $88.50 and its last (D0) dividend was $1.10. Determine the implied constant growth rate for Kyocera assuming it returns 14%.

Answer 1

The implied constant growth rate for Kyocera is approximately 17%.

Step-by-step explanation:

To determine the implied constant growth rate for Kyocera, we can use the Gordon Growth Model. The formula for the Gordon Growth Model is: Growth Rate = (Dividend / Stock Price) + Dividend Growth Rate. In this case, the dividend is $1.10 and the stock price is $88.50. The problem gives us the return rate of 14% but we need to convert it to decimal form by dividing it by 100. So, the dividend growth rate is 0.14. Plugging these values into the formula, we get: Growth Rate = (1.10 / 88.50) + 0.14 = 0.0299 + 0.14 = 0.1699. Therefore, the implied constant growth rate for Kyocera is approximately 17%.