The Sisyphean Company is currently trading for $25.00 per share. The company is expected to pay a $2.50 dividend at the end of the year and its 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 constant growth dividend discount model to determine the expected growth rate.

$25.00 = $2.50 / (0.14 - g)

Solving for g, we get:

g = 0.04 or 4%

Therefore, the expected growth rate in the Sisyphean Company's earnings is 4%. Choice C is the closest answer option.

The Sisyphean Company Is Currently Trading for $25