Mastercard Inc.'s stock has a required return of 8% and the stock is currently priced at $125 per share. Mastercard just paid a dividend of $2.00, and they have announced that they plan to increase its dividend payment at a rate of 20% per year for the next 4 years. After Year 4, they expect the dividend growth rate to slow down from the 20% to a more modest constant growth rate of X% per year going forward forever. 

What is the constant growth rate that Mastercard is expecting after Year 4 (i.e., what is X)?

Answer rating: 100% (QA)

SOLUTION We can use the Gordon Growth Model to calculate the expected constant growth rate after year 4 The Gordon Growth Model states that the expect... View the full answer