Eastern Electric currently pays a dividend of about $1.81 per share and sells fo

Question

Eastern Electric currently pays a dividend of about $1.81 per share and sells for $30 a share a. If investors believe the growth rate of dividends is 3% per year, what rate of return do they expect to earn on the stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Rate of return 9.21 % b. If investors' required rate of return is 15%, what must be the growth rate they expect of the firm? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Growth rate C. If the sustainable growth rate is 5% and the plowback ratio is .5, what must be the rate of return earned by the firm on its new investments? (Enter your answer as a percent rounded to 2 decimal places.) Rate of return 10.00 %

Explanation / Answer

a.

Rate of return

=(D1/P)+G

=((1.81*1.03)/30)+3%

=9.21%

the above is the answer

b.

30=(1.81*(1+g))/(15%-g)

1.81+1.81g=4.5-30g

g=(4.5-1.81)/(1.81+30)

=8.46%

the above is the answer

c.

rate of return=5%/.5

=10.00%

the above is the answer

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

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