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29 December, 18:53

A company has stock which costs $ 41.00 per share and pays a dividend of $ 2.30 per share this year. The company's cost of equity is 11 %. What is the expected annual growth rate of the company's dividends?

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  1. 29 December, 21:10
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    5.4%

    Explanation:

    Data provided as per the question

    Cost of equity = 11%

    Dividend = $2.30

    Stock cost = 41.00

    The computation of expected annual growth rate is shown below:-

    Required rate = Dividend yield + Annual Growth Rate

    Dividend : Price + Annual Growth Rate

    11% = $2.30 : 41 + Annual Growth Rate

    11% = 5.60% + Annual Growth Rate

    Annual Growth rate = 11% - 5.60%

    = 5.4%
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