Question

In: Finance

VolCal in at the end of the year is expected to have EPS of $5 the...

VolCal in at the end of the year is expected to have EPS of $5 the firm has a cost of capital of 19% currently pay out of all earnings as a divident using the assumption of perfect capital markets

what is the firms current growth rate?

a. 43.7750
b.58.8835
c.41.666
d.50.2575
e.40.0000
f.45.4545
g. 0%
h. 2%
I 1%
j. 3%
k.60.2675

Solutions

Expert Solution

Answer is g. 0.

Explanation-

As per Gordon's Model

Growth Rate , g = b x r

Where b = Retention Ratio

And, r = Rate of Return on equity

Further, Retention Ratio = 1 - Dividend Payout Ratio

In the Given Question,

b = 1 - 100% = 0

r = 19%

Hence, Growth Rate, g = 0 x 19% = 0

jeff jeffy answered 2 years ago
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