Question

The Sisyphean​ Company's common stock is currently trading for $ 25.5 $25.5 per share. The stock is expected to pay a $ 2.5 $2.5 dividend at the end of the year and the Sisyphean​ Company's equity cost of capital is 15 15​%. If the dividend payout rate is expected to remain​ constant, then the expected growth rate in the Sisyphean​ Company's earnings is closest​ to:

Answer 1

5.2%

Step-by-step explanation:

The computation of growth rate is shown below:-

Retained earning = (Expected dividend for the next year ÷ Current price of the stock) + Growth rate

15% = ($2.5 ÷ $25.5) + Growth rate

0.15 = $0.0980 + Growth rate

Growth rate = 0.15 - $0.0980

= $0.052

or

= 5.2%

So, for computing the growth rate we simply applied the above formula.