Taggart Transcontinental has a dividend yield of 2.5%.Taggart's equity cost of capital is 10%,and its dividends are expected to grow at a constant rate.Based on this information,Taggart's constant growth rate in dividends is closest to:

Question

Quizplus · Accepted Answer

Using the dividend valuation model, we can find the constant growth rate in dividends:
Equity Cost of Capital (r) = Dividend Yield (D1/P0) + Constant Growth Rate (g)
10% = 2.5% + g
g = 10% - 2.5%
g = 7.5%
Therefore, the constant growth rate in dividends is 7.5%, which is closest to choice D.

Taggart Transcontinental Has a Dividend Yield of 2