Estimating the Market$$s Expected Growth Rate in Dividends

Mattel, Inc. was trading at a price of $$29\mathrm{.}19$ per common share at December $31,2015.$ Using the Gordon growth model, estimate the market$$s expected growth in dividends that is required to yield the $$29\mathrm{.}19$ price per common share. Assume that the current dividend per share is $$1\mathrm{.}52$ and is expected to grow thereafter, and that the cost of equity capital is $8\mathrm{.}0\%.($Hint: Use the equation for the dividend discount model with increasing perpetuity, at the top of page $12-20.)$

Round answer to one decimal place $($ex: $0\mathrm{.}0235=2\mathrm{.}4\%).$

Note: Assume current dividend per share is the dividend amount when the constant growth period begins.

Answer

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$\%$Estimating the Market's Expected Growth Rate in Dividends

Mattel, Inc. was trading at a price of $$29\mathrm{.}19$ per common share at December $31,2015.$ Using the Gordon growth model, estimate the market's expected growth in

dividends that is required to yield the $$29\mathrm{.}19$ price per common share. Assume that the current dividend per share is $$1\mathrm{.}52$ and is expected to grow thereafter, and that

the cost of equity capital is $8\mathrm{.}0\%.($Hint: Use the equation for the dividend discount model with increasing perpetuity, at the top of page $12-20.)$

Round answer to one decimal place $($ex: $0\mathrm{.}0235=2\mathrm{.}4\%).$

Note: Assume current dividend per share is the dividend amount when the constant growth period begins.