Question: ( Common stock valuation ) Dalton Inc. has a return on equity of 12.4 percent and retains 57 percent of its earnings for reinvestment purposes.

(Common stock valuation)

Dalton Inc. has a return on equity of 12.4 percent and retains 57 percent of its earnings for reinvestment purposes. It recently paid a dividend of $3.25 and the stock is currently selling for $43.

a. What is the growth rate for Dalton Inc.?

b. What is the expected return for Dalton's stock?

c. If you require a 12 percent return, should you invest in the firm?

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