Estimate the growth rate of stock, Cost Accounting

Estimate the Growth rate of stock

Data

stock price = 53

rate of return= 12%

expected dividend = 3.15

Formula :

Expected return  = (dividend paid + capital gain (growth)) / price of stock

Expected Growth = (price of stock x  expected return) - dividend paid

Expected growth  =  (53 x  12%)  - 3.15

Expected growth = 3.21

Growth rate = Expected growth / stock price * 100

Growth rate = 3.21 / 53 * 100

Growth rate = 6.05 % or 6 %

This can be solved through this formula as well

Formula

Dividend Growth rate = Discount rate - (dividend paid / stock price)

Dividend growth rate = 12% - ( 3.15 / 53)

Dividend growth rate = 6%

Posted Date: 3/19/2013 3:16:47 AM | Location : United States







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