question archive Determine g by Rearranging the Conventional DDM Formula
Determine g by Rearranging the Conventional DDM Formula
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Determine g by Rearranging the Conventional DDM Formula. Johnson Corporation's stock is currently selling at $45.83 per share. The last dividend paid was D0 = $2.50. Johnson is a constant growth firm. If investors expect a return of 16 percent on Johnson's stock, what do they think Johnson's growth rate will be?
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Answer:
2.5/0.16 - g = 45.83
0.16 - g = 2.5/45.83
g = 0.16 - 2.5/45.83 = 0.10545
Hence g is 10.545%
rounding its 10.55%
