The Shamrock Dogfood Company (SDC) has consistently paid out 40 percent of its earnings in dividends....

The Shamrock Dogfood Company (SDC) has consistently paid out 40 percent of its earnings in dividends. The company's return on equity is 14 percent. Do not round intermediate calculations. Round your answers to two decimal places.

What would you estimate as its dividend growth rate? %

If you found out that the company was only growing at 2 percent, how much could the company afford to pay out? %

Solutions

Expert Solution

a. Growth rate = ROE * Retention ratio = 0.14 * (1 - 0.40) = 0.0840 or 8.40%

b. Growth rate = ROE * Retention ratio

0.02 = 0.14 * Retention ratio

Retention ratio = 0.02 / 0.14

Retention ratio = 0.1429 or 14.29%

Payout ratio = 100% - 14.29%

Payout ratio = 85.71%

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

AGC Investment Ltd. pays out 70 percent of its earnings in the form of dividends. Evaluate...

AGC Investment Ltd. pays out 70 percent of its earnings in the form of dividends. Evaluate this policy assuming most stockholders are senior citizens in low tax brackets. Evaluate this policy assuming most stockholders are in high tax bracket

AGC Investment Ltd. pays out 70 percent of its earnings in the form of dividends. Evaluate...

Beta company pays out 10% of earnings in dividends, and its latest earning was $5 per...

Beta company pays out 10% of earnings in dividends, and its latest earning was $5 per share. it earns an ROE on new investments of 15%. Suppose Jenny rewuires 14% return a. how much should she pay for a share of stock of Beta company if she believes that this company can maintain its current retention ratio and ROE in new investment in the long run. b. how much should she pay if the payout ratio was 60% and ROE...

Picturetonics just reported earnings per share of $3.00 and paid out dividends of $0.60. Assume that...

Picturetonics just reported earnings per share of $3.00 and paid out dividends of $0.60. Assume that PIcturetronics’ earnings will grow 16% a year for the next 2 years and the dividend payout ratio (dividends as a percent of earnings) will remain at 20%. After 2 years, you expect Picturetronics’ earnings will grow 6% a year forever and its dividend payout ratio will increase to 60% forever. Assume the change in the growth rate and payout policy has no impact on...

Burnham Brothers Inc. has no retained earnings since it has always paid out all of its...

Burnham Brothers Inc. has no retained earnings since it has always paid out all of its earnings as dividends. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC? a. Expected inflation increases. b. The flotation costs associated with issuing preferred stock increase. c. The company's beta...

Roger Stones, Inc. reported $26,000,000 retained earnings at the year-end. It paid out $4,000,000 in dividends....

Roger Stones, Inc. reported $26,000,000 retained earnings at the year-end. It paid out $4,000,000 in dividends. What was its net income if the prior year’s retained earnings were $19,500,000? $12,100,000 $10,500,000 $9,600,000 $10,900,000

What do retained earnings represent? Dividends are sometimes said to have been paid "out of retained...

What do retained earnings represent? Dividends are sometimes said to have been paid "out of retained earnings." What is the error, if any, in this statement? For what reasons might a company restrict a portion of its retained earnings? How are those restrictions reported?

41. Ford Company Retained Earnings increased $20,000 during the year and the Company paid dividends of...

41. Ford Company Retained Earnings increased $20,000 during the year and the Company paid dividends of $4,000. What was the net income (loss) for the year? $24,000. $34,000. $(24,000). $4,000. Some other amount. 43. Missouri Magazine Publishing Company sells magazine subscriptions on an annual basis covering 12 issues. Subscriptions totaling $24,000 were sold in November, and the first magazines are delivered in December. The total amount collected was recorded in Unearned Magazine Revenues. The adjusting entry required at December 31...

A company’s current ROE is 12%. It pays out one-half of its earnings as cash dividends....

A company’s current ROE is 12%. It pays out one-half of its earnings as cash dividends. Current book value is $20 and all reinvestments in the business will also produce a 12% return. If the cost of capital is 8%, what is the appropriate current share price? What is the expected share price after five years? If the cost of capital is 15%, what is the appropriate current share price? What is the expected share price after five years?

Assume a company you are analyzing is expected to grow its earnings and dividends at a...

Assume a company you are analyzing is expected to grow its earnings and dividends at a constant rate in the foreseeable future (forever). How will you find the intrinsic value of your stock? This answer requires multiple steps and concepts

Subjects