Rowell Products stock is currently selling for $60 a share. The firm is expected to earn $5.40

Question:

Rowell Products’ stock is currently selling for $60 a share. The firm is expected to earn $5.40 per share this year and to pay a year-end dividend of $3.60.

a. If investors require a 9 percent return, what rate of growth must be expected for Rowell?

b. If Rowell reinvests retained earnings in projects whose average return is equal to the stock’s expected rate of return, what will be next year’s earnings per share?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...