Savickas Petroleum's stock has a required return of 12%,and the stock sells for $43 per share.The firm just paid a dividend of $1.00,and the dividend is expected to grow by 30% per year for the next 4 years,so D₄ = $1.00(1.30)⁴ = $2.8561.After t = 4,the dividend is expected to grow at a constant rate of X% per year forever.What is the stock's expected constant growth rate after t = 4,i.e. ,what is X?

Question

Quizplus · Accepted Answer

The correct answer is A because the constant growth rate can be calculated as (r - g), where r is the required return and g is the growth rate. In this case, r = 12% and g = 30% for the first 4 years, and g = X% after that. So, X = (12% - 30%) = 6.78%.

Savickas Petroleum's Stock Has a Required Return of 12%,and the Stock