Dividend (Div) Required return (r) Growth rate (g) Now we can try this by introducing constant growth in dividends. A. Dividend is $1.00 per year. Investors require a 10% return. Initially, it is thought there will be 0% dividend growth. Div r-g B. Dividend is $1.00. Required return is still 10% but investors now expect the dividend will grow 2% per annum. C. Dividend is $1.00 per year. Market optimism drives the required return down to 8% while at the same time a new growth strategy boosts the expected dividend growth rate to 696
Dividend (Div) Required return (r) Growth rate (g) Now we can try this by introducing constant growth in dividends. A. Dividend is $1.00 per year. Investors require a 10% return. Initially, it is thought there will be 0% dividend growth. Div r-g B. Dividend is $1.00. Required return is still 10% but investors now expect the dividend will grow 2% per annum. C. Dividend is $1.00 per year. Market optimism drives the required return down to 8% while at the same time a new growth strategy boosts the expected dividend growth rate to 696
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Dividend (Div)
Required return (r)
Growth rate (g)
Div
r-g
Now we can try this by introducing constant growth in dividends.
A. Dividend is $1.00 per year. Investors require a 10% return.
Initially, it is thought there will be 0% dividend growth.
B. Dividend is $1.00. Required return is still 10% but investors now expect
the dividend will grow 2% per annum.
C. Dividend is $1.00 per year. Market optimism drives the required return down
to 8% while at the same time a new growth strategy boosts the expected
dividend growth rate to 6%.
11
=
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