Acme Corporation stock currently sells for $22.08 per share.The last dividend paid was $1.00 per share.The next dividend will be paid in one year and is expected to be $1.50;the following year's dividend will be $2.50;and,in the third year dividends are expected to begin growing at a constant rate.If the appropriate discount rate for Acme is 20 percent,at what constant rate does the market expect dividends to grow in Year 3 and beyond?
A) 10.0%
B) 15.0%
C) 8.0%
D) 20.0%
E) 12.5%

Question

Quizplus · Accepted Answer

The correct answer is A because the constant growth rate is 10%.

Acme Corporation Stock Currently Sells for $22