Luther Industries has a dividend yield of 4.5% and a cost of equity capital of 12%.Luther Industries dividends are expected to grow at a constant rate indefinitely.The growth rate of Luther's dividends is closest to:
A)7.5%.
B)5.5%.
C)16.5%.
D)12%.

Question

Quizplus · Accepted Answer

The growth rate of dividends can be calculated using the formula: Cost of Equity = Dividend Yield + Growth Rate. Rearranging gives Growth Rate = Cost of Equity - Dividend Yield = 12% - 4.5% = 7.5%.

Luther Industries Has a Dividend Yield of 4