Marjen,Inc.just paid a dividend of $5.Marjen shares currently sell for $73.57.The return on shares like Marjen,Inc.is around 10%.What is the implied growth rate of dividends?

Question

Quizplus · Accepted Answer

The implied growth rate (g) can be calculated using the Gordon Growth Model: P = D1 / (r - g), where P is the price, D1 is the dividend next year, and r is the required return. Here, D0 = $5, so D1 = $5 * (1 + g). Plugging in the values: $73.57 = $5 * (1 + g) / (0.10 - g). Solving for g gives approximately 3%.