Dahon Inc. has a return on equity of 10.4 percent and retains 51 percent of hs e

Question

Dahon Inc. has a return on equity of 10.4 percent and retains 51 percent of hs earnings for reinvestment purposes. It recently paid a dividend of $3.50 and the stock is currently selling for $42. a. What is the growth rate for Dahon Inc.? b. What is the expected return for Dahoris stock? c. If you require a 14 percent return, should you invest in the firm? a. What is the growth rate for Dahon Inc.? b. What is the expected return for Dahon's stock? c. If you require a 14 percent return, should you invest in the firm?

Explanation / Answer

a) 42= [3.50x(1+g)]/(.104-g)

4.368-42g = 3.50+3.50g

42g+3.50g= 4.368-3.50

45.5g = 0.868

g= 1.90%

b) g=br
0.0190=ROEx.51
ROE= 3.72%

c) No.

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