Herbalife ltd (ticker “HLF”) has been in the news recently with two prominent investors disagreeing about the company’s prospects. You are interested in finding the perpetuity growth rate implied by the current stock price. The details are as follows:
The Company just paid a dividend of $1.20. Analysts expect that over the next five years, Herbalife’s dividend will grow at a rate 15% per year. Assume a discount rate of 12%. If the current stock price is $38.74, what is the implied perpetuity growth rate?