The common stock of Kyocera currently sells for $88.50 and its last (D₀)dividend was $1.10. Determine the implied constant growth rate for Kyocera assuming it returns 14%.

Question

Quizplus · Accepted Answer

The implied constant growth rate (g) can be calculated using the Gordon Growth Model: P0 = D0*(1+g)/(r-g). Rearranging for g gives g = (r*P0 - D0)/(P0 + D0). Substituting the given values: g = (0.14*88.50 - 1.10)/(88.50 + 1.10) = 12.6%.

The Common Stock of Kyocera Currently Sells for $88