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Growth Rate

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Grateway Inc. has a WACC of 11.5%. Its target capital structure is 55% equity and 45% debt. The company has sufficient retained earnings to fund the equity portion of its capital budget. The before-tax cost of debt is 9%, and the company's tax rate is 30%. If the expected dividend next period (D1) is $5.00 and the current stock price is $45, what is the company's growth rate?

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Solution Summary

The solution explains how to calculate the dividend growth rate

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Using the dividend discount model,
growth rate g = Ke- D1/MP
where Ke = cost of ...

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