LJK Inc. has common stock in the marketplace that give a $2 annual dividend on i
ID: 2801663 • Letter: L
Question
LJK Inc. has common stock in the marketplace that give a $2 annual dividend on its $4.50 earnings per share. Morningstar shows a return on equity of 17%. If the stock is expected to grow constantly and similar stocks are expected to return 15%.
What is the growth rate?
At what price would you expect it to sell right now?
Two years after buying the stock at the price in B. above, the stock is now selling for $15. The stock has paid the dividends as expected per the growth rate in A. above. What would be the holding period rate of return?
When the stock is selling at $15 and considering the dividend an investor would get at the time of the next dividend, what would be the stock's current yield?
Please include step by step if possible!
What is the growth rate?
At what price would you expect it to sell right now?
Two years after buying the stock at the price in B. above, the stock is now selling for $15. The stock has paid the dividends as expected per the growth rate in A. above. What would be the holding period rate of return?
When the stock is selling at $15 and considering the dividend an investor would get at the time of the next dividend, what would be the stock's current yield?
Please include step by step if possible!
Explanation / Answer
a.
Earnings per share = $4.50
Dividend pr share = $2.00
Payout ratio = $2.00 / $4.50
= 44.44%.
Retention ratio = 55.56%.
Return on equity = 17%
Growth rate = Retention ratio × Return on equity
= 55.56% × 17%
= 9.44%
Growth rate of LNK Inc. stock is 9.44%.
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