Sidman Products\' common stock currently sells for $65 a share. The firm is expe

Question

Sidman Products' common stock currently sells for $65 a share. The firm is expected to earn $6.50 per share this year and to pay a year-end dividend of $3.00, and it finances only with common equity.

If investors require a 10% return, what is the expected growth rate? Round your answer to two decimal places.

% ______

If Sidman reinvests retained earnings in projects whose average return is equal to the stock's expected rate of return, what will be next year's EPS? (Hint: g = (1 - Payout rate)(ROE).) Round your answer to the nearest cent.

$ ____ per share.

Explanation / Answer

ke= d1/p0 + G where ke = return expected, D1 = Dividend at end of year, P0= price at beginning and G =growth 10% = 3/65 +G g= 5.38% Next year EPS = (6.5*105.38%) + 3.5*10%*105.38% Next year EPS = 7.22

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