The equity stock of Lex Ltd. is currently selling for ₹ 30 per share. The dividend expected next year is ₹ 2 per share. The required rate of return by investors on this stock is 15%. If the constant growth model is appli

Answer 2(a) According to the constant growth model P o = D 1 / (r - g) Where, P o = Current stock price g = Constant growth rate expected for dividends, in perpetuity r = Constant cost of equity capital for the company (or rate of return) D 1 = Value of next year's dividends. This means: g = r - (D 1 / P o ) = 0.15 - (2 / 30) = 8.3 percent