(Common stock valuation) Dalton Inc. has a return on equity of 11.2 percent and

Question

(Common stock valuation) Dalton Inc. has a return on equity of 11.2 percent and retains 56 percent of its earnings for reinvestment purposes. It recently paid a dividend of $3.25 and the stock is currently selling for $38. a. What is the growth rate for Dalton Inc.? b. What is the expected return for Dalton's stock? e. you reguire a 1rent u should you mestin the fm? a. What is the growth rate for Dalton Inc.? % (Round to two decimal places.) b. What is the expected return for Dalton's stock? % (Round to two decimal places.) c. If you require a 14 percent return, should you invest in the firm? 1. (Select from the drop-down menu.) At 0 Yes

Explanation / Answer

a. Growth rate = Return on equity x Retention rate = 0.112 x 0.56 = 0.0627 or 6.27%

b. Expected rate of return = Dividend/Selling price + Growth rate = $3.25(1.0627)/$38 + 0.0627 = 0.1536 or 15.36%

c. Yes

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.