Stockholders of a firm expect a 12% growth rate on their stock. Management believes that ROE...

Stockholders of a firm expect a 12% growth rate on their stock. Management believes that ROE will be 12% for the next 5 years. Given this information, the firms dividend payout ratio (one minus plow back ratio) for this period is

A. 100%

B. 0%

C. between 0% and 50%

D. between 50% and 100%

Expert Solution

Given,

Expected growth rate = 12%

ROE = 12%

Solution :-

Plowback ratio = Expected growth rate/ROE

= 12%/12% = 1

Dividend payout ratio = 1 - plowback ratio

= 1 - 1 = 0 or 0%

Option 'B' is correct.

jeff jeffy answered 2 years ago

calculate the sustainable earnings growth rate of a firm with ROE of 17.2% and earnings retention...

calculate the sustainable earnings growth rate of a firm with ROE of 17.2% and earnings retention rate of 0.5

The market-capitalization rate on the stock of Flexsteel Company is 12%. The expected ROE is 13%,...

The market-capitalization rate on the stock of Flexsteel Company is 12%. The expected ROE is 13%, and the expected EPS are $3.60. If the firm's plowback ratio is 50%, the P/E ratio will be

Joker stock has a sustainable growth rate of 9 percent, ROE of 17 percent, and dividends...

Joker stock has a sustainable growth rate of 9 percent, ROE of 17 percent, and dividends per share of $1.55. If the P/E ratio is 15.5, what is the value of a share of stock? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.) Share of stock $________

Joker stock has a sustainable growth rate of 9 percent, ROE of 15 percent, and dividends...

Joker stock has a sustainable growth rate of 9 percent, ROE of 15 percent, and dividends per share of $3.15. If the P/E ratio is 19.7, what is the value of a share of stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

A firm has been growing at 20% per year, and you expect this growth rate will...

A firm has been growing at 20% per year, and you expect this growth rate will continue for another 3 years. After that it will face more competition and slip into a constant growth rate of 5% forever. If the discount rate is 10% and last dividend paid was $3. (a) What will the next dividend be? (b) What is the expected price of the stock 3 years from now? (c) What should the stock price be today?

FIND THE STOCK VALUE 1.A firm is expected to have a high growth rate in the...

FIND THE STOCK VALUE 1.A firm is expected to have a high growth rate in the next 3years and a stable growth rate of 5% a year forever after that. Use the following information to find the stock value. Inputs for the high growth period: Current earnings per share (EPS0) = $4.00 Current dividend per share ((DPS0) = $1.00 Length of the high-growth period = 3years Long-term bond rate (proxy for the risk-free rate) = 5% Market risk premium =...

A high equity multiplier can increase ROE and the growth rate of the bank as long...

A high equity multiplier can increase ROE and the growth rate of the bank as long as ROA is: A) increasing B)decreasing C) positive D) negative E) none of the above

Problem 9-12 Valuation of a constant growth stock Investors require a 18% rate of return on...

Problem 9-12 Valuation of a constant growth stock Investors require a 18% rate of return on Levine Company's stock (i.e., rs = 18%). What is its value if the previous dividend was D0 = $3.00 and investors expect dividends to grow at a constant annual rate of (1) -5%, (2) 0%, (3) 3%, or (4) 11%? Round your answers to two decimal places. (1) $ (2) $ (3) $ (4) $ Using data from part a, what would the Gordon...

24. The sustainable growth rate of a firm is best described as the minimum growth rate...

24. The sustainable growth rate of a firm is best described as the minimum growth rate achievable, assuming a 100 percent retention ratio. minimum growth rate achievable if the firm maintains a constant equity multiplier. maximum growth rate achievable, excluding external financing of any kind. maximum growth rate achievable, excluding any external equity financing while maintaining a constant debt-equity ratio. maximum growth rate achievable with unlimited debt financing. None of the options are correct. 25. Which of the following statements...

Exxon Mobil stock currently sells at $33.68 a share. The stockholders expect to get a dividend...

Exxon Mobil stock currently sells at $33.68 a share. The stockholders expect to get a dividend of $3 next year, and they expect that the dividend will grow at the rate of 3.5% per annum. The expected return on the market is 5% and the riskless rate is 3%. This morning Exxon announced that it has lost a legal battle with an adversary, and in response to the news, the stock went down to $30 a share. Find the beta...

Question