In: Finance
Consider the following data:
Year 1 | Year 2 | Year 3 | Year 4 | |
Book Value of Equity | 25 | |||
ROE | 22% | 22% | 30% | 30% |
Payout | 65% | 65% | 60% | 60% |
Net Income | ||||
Dividends | ||||
Retained Earnings | ||||
g | - |
a) Complete the table.
b) Check that in period 2 and period 4, the dividends grow according to the formula: g = ROE (1 - Payout) and explain.
c) Determine the value of equity (E), taking into account that the dividend growth rate after the 4th year is the same as in the 4th year, and that the required return on equity is 20%.