Sidman Products\' common stock currently sells for $51 a share. The firm is expe

Question

Sidman Products' common stock currently sells for $51 a share. The firm is expected to earn $6.10 per share this year and to pay a year-end dividend of $2.40, and it finances only with common equity.

a. If investors require a 12% return, what is the expected growth rate? Round your answer to two decimal places.
_______ %

b. If Sidman reinvests retained earnings in projects whose average return is equal to the stock's expected rate of return, what will be next year's EPS? [Hint: g = (1 - Payout rate)(ROE).] Round your answer to two decimal places._________

Explanation / Answer

Firm is expected to earn = $6.10 per share

Dividend = $2.40 per share

(a) If investors require a 12% return, what is the expected growth rate?

Dividend growth rate (g) = ?

P0 = [D1 / (R

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