Savickas Petroleum's stock has a required return of 12.00%,and the stock sells for $44.00 per share.The firm just paid a dividend of $1.00,and the dividend is expected to grow by 30.00% 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? Do not round your intermediate calculations.

Question

Quizplus · Accepted Answer

The stock price is calculated using the dividend discount model. The present value of dividends for the first 4 years plus the present value of the stock price at year 4 (using the constant growth rate) should equal the current stock price. Solving for the growth rate X gives approximately 6.91%.

Savickas Petroleum's Stock Has a Required Return of 12