Turnips and Parsley common stock sells for $39.86 a share at a market rate of return of 9.5 percent. The company just paid their annual dividend of $1.20. What is the rate of growth of their dividend?

Question

Business

Kade Adkins

18 November, 18:49

Turnips and Parsley common stock sells for $39.86 a share at a market rate of return of 9.5 percent. The company just paid their annual dividend of $1.20. What is the rate of growth of their dividend?

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Answers (1)

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Averie Gutierrez · Answer 1

The rate of growth of their dividend is 6.30%.

Explanation:

This problem requires us to calculate the growth rate at which the dividend will grow. The market value of share and market rate of return is also given in the problem. So we can easily calculate it using market valuation formula.

MV = D (1+G%) / ke

39.86 = 1.2 (1+G%) / (9.5%-G%)

G = 6.30%