Question

Toys-r-Cool Inc.'s constant growth stock's last dividend was $1.50. It is selling for $30.20 in a market in which similar stocks return 12%. Calculate the stock's anticipated growth rate.Toys-r-Cool Inc.'s constant growth stock's last dividend was $1.50. It is selling for $30.20 in a market in which similar stocks return 12%. Calculate the stock's anticipated growth rate.

Answer 1

The anticipated growth rate for Toys-r-Cool Inc.'s stock is approximately 16.61%.

Step-by-step explanation:

To calculate the stock's anticipated growth rate, we can use the Gordon Growth Model formula:

Growth Rate = (Dividend / Stock Price) + Dividend Growth Rate

Given that the last dividend was $1.50 and the stock is selling for $30.20, we can substitute these values into the formula:

Growth Rate = (1.50 / 30.20) + Dividend Growth Rate

The market return rate is 12%, which can be considered as the dividend growth rate. We can substitute this value into the formula:

Growth Rate = (1.50 / 30.20) + 0.12

After simplification, the growth rate is approximately 0.1661 or 16.61%.