The main answer in 2 lines:
The implied dividend growth rate for Llano's stock is 5%.
Explanation in 160 words:
To find the implied dividend growth rate, we can use the Gordon Growth Model. The Gordon Growth Model states that the stock price is equal to the expected dividend divided by the difference between the required return and the dividend growth rate. In this case, the stock price is $40, the expected dividend is $4, and the required return is 13%. We can rearrange the formula to solve for the dividend growth rate.
First, subtract the required return from 1 to convert it to decimal form: 1 - 0.13 = 0.87.
Then, divide the expected dividend by the stock price: $4 / $40 = 0.1.
Finally, divide 0.1 by 0.87 to find the dividend growth rate: 0.1 / 0.87 = 0.1149 or 11.49%.
Therefore, the implied dividend growth rate for Llano's stock is approximately 11.49%.
Calculation step:
Dividend growth rate = Expected dividend / (Stock price * (1 - Required return)) = $4 / ($40 * (1 - 0.13)) = $4 / ($40 * 0.87) = 0.1149 or 11.49%