Company Q's current return on equity (ROE) is 16%. It pays out 60 percent of earnings...

 

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Company Q's current return on equity (ROE) is 16%. It pays out 60 percent of earnings as cash dividends (payout ratio = 0.60). Current book value per share is $62. Book value per share will grow as Q reinvests earnings. Assume that the ROE and payout ratio stay constant for the next three years. After that, competition forces ROE down to 12.5% and the payout ratio increases to 0.70. The cost of capital is 10.0%. What is Q's stock worth per share? Company Q's current return on equity (ROE) is 16%. It pays out 60 percent of earnings as cash dividends (payout ratio = 0.60). Current book value per share is $62. Book value per share will grow as Q reinvests earnings. Assume that the ROE and payout ratio stay constant for the next three years. After that, competition forces ROE down to 12.5% and the payout ratio increases to 0.70. The cost of capital is 10.0%. What is Q's stock worth per share?

Answer rating: 100% (QA)

Okay here are the steps to solve this problem 1 ROE is currently 16 2 Payout ratio is currently 60 3 ... View the full answer