Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

Xytex Products just paid a dividend of $2.12 per share, and the stock currently

ID: 2771789 • Letter: X

Question

Xytex Products just paid a dividend of $2.12 per share, and the stock currently sells for $32. If the discount rate is 12 percent, what is the dividend growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Xytex Products just paid a dividend of $2.12 per share, and the stock currently sells for $32. If the discount rate is 12 percent, what is the dividend growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Explanation / Answer

D0= $ 2.12, P0=$32 Ke=12% g=?

P0= D0(1+g)/Ke-g

32=2.12(1+g)/.12-g

32*(.12-g)=2.12(1+g)

3.84-32g=2.12+2.12g

3.84-2.12=32g-2.12g

1.72=29.88g

g=0.0576

g=5.76%

Thus dividend growth rate is 5.76%

Whereas,

D0=Dividend currently paid

P0=Current Price

Ke=Discount Rate

g=Growth rate