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16 February, 16:18

The Sisyphean Company's common stock is currently trading for $ 25.5 $25.5 per share. The stock is expected to pay a $ 2.5 $2.5 dividend at the end of the year and the Sisyphean Company's equity cost of capital is 15 15 %. If the dividend payout rate is expected to remain constant, then the expected growth rate in the Sisyphean Company's earnings is closest to:

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  1. 16 February, 16:27
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    5.2%

    Explanation:

    The computation of growth rate is shown below:-

    Retained earning = (Expected dividend for the next year : Current price of the stock) + Growth rate

    15% = ($2.5 : $25.5) + Growth rate

    0.15 = $0.0980 + Growth rate

    Growth rate = 0.15 - $0.0980

    = $0.052

    or

    = 5.2%

    So, for computing the growth rate we simply applied the above formula.
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