# Question: Eastern Electric currently pays a dividend of about 1 64 per

Eastern Electric currently pays a dividend of about $1.64 per share and sells for $27 a share.

a. If investors believe the growth rate of dividends is 3% per year, what rate of return do they expect to earn on the stock?

b. If investors’ required rate of return is 10%, what must be the growth rate they expect of the firm?

c. If the sustainable growth rate is 5% and the plowback ratio is .4, what must be the rate of

return earned by the firm on its new investments?

Dividend per share.................................$1.64

Stock price.................................................$27.00

Growth rate of dividends (a) ....................3.00%

Required rate of return (b) ........................10.00%

Sustainable growth rate...............................5.00%

Plowback ratio............................................ 0.40

a. If investors believe the growth rate of dividends is 3% per year, what rate of return do they expect to earn on the stock?

b. If investors’ required rate of return is 10%, what must be the growth rate they expect of the firm?

c. If the sustainable growth rate is 5% and the plowback ratio is .4, what must be the rate of

return earned by the firm on its new investments?

Dividend per share.................................$1.64

Stock price.................................................$27.00

Growth rate of dividends (a) ....................3.00%

Required rate of return (b) ........................10.00%

Sustainable growth rate...............................5.00%

Plowback ratio............................................ 0.40

## Answer to relevant Questions

Horse and Buggy Inc. is in a declining industry. Sales, earnings, and dividends are all shrinking at a rate of 10% per year. a. If r = 15% and DIV 1 = $3, what is the value of a share?b. What price do you forecast for the ...Fincorp will pay a year-end dividend of $2.40 per share, which is expected to grow at a 4% rate for the indefinite future. The discount rate is 12%. a. What is the stock selling for? b. If earnings are $3.10 a share, ...Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the firm projects growth of 20% per year for 4 years. By then, other firms will have copycat technology, ...Just4U Company uses a job order cost system. The following data summarize the operations related to production for the month of January 20xx.a) Materials purchased on account:b) Materials requisitioned and Factory labor ...Using the web, access The Coca-Cola Company's 2010 financial statements (www.thecoca-colacompany.com). Identify and discuss the following aspects of consolidated tax expense disclosed in the financial statements: 1. Loss ...Post your question