The Sisyphean Company's common stock is currently trading for $25.00 per share.The stock is expected to pay a $2.50 dividend at the end of the year and the Sisyphean Company's equity cost of capital is 14%.If the dividend payout rate is expected to remain constant,then the expected growth rate in the Sisyphean Company's earnings is closest to:

Question

Quizplus · Accepted Answer

We can use the Gordon Growth Model to calculate the expected growth rate in earnings.

G = (D / P) + g, where G is the required rate of return, D is the dividend, P is the current stock price, and g is the expected growth rate.

Plugging in the given information, we get:

14% = ($2.50 / $25.00) + g

Solving for g, we get:

g = 4%

Therefore, the expected growth rate in the Sisyphean Company's earnings is 4%.

The Sisyphean Company's Common Stock Is Currently Trading for $25