This Question: 1 pt 7 of 40 (0 complete) This Test: 40 pts po E Question Help (C

Question

This Question: 1 pt 7 of 40 (0 complete) This Test: 40 pts po E Question Help (Common stock valuation) Dalton Inc. has a return on equity of 10.3 percent and retains 53 percent of its earnings for reinvestment purposes. It recently paid a dividend of $3.00 and the stock is currently selling for $40. a. What is the growth rate for Dalton Inc.? b. What is the expected return for Dalton's stock? c. If you require a 13 percent return, should you invest in the firm? 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 13 percent return, should you invest in the firm? | (Select from the drop-down menu) Yes No Enter your answer in each of the answer boxes xpert Answer work-help/foundations-of-finance-8th-edition-solutions-9780132994873 o search Co e

Explanation / Answer

a)

Growthr rate = ROE * retention ratio = 10.3% * 53% = 5.46%

b)

R = (D*(1+g) / Price) + g = 3*(1+5.46%) / 40 + 5.46% = 13.37%

c)

Yes, As R(13.37%) is greater than 13%

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