Spring Break Corporation earned $10 million for the fiscal year ending yesterday. The firm also paid...

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Spring Break Corporation earned $10 million for the fiscal year ending yesterday. The firm also paid out 20% of its earnings as dividends yesterday and it will continue to pay out 20% of its earnings as annual, end of year dividends. The remaining 80% of earnings is retained by the company. Spring Break Corporation has 2 million shares of common stock outstanding. The current stock price is $85. The historical return on equity (ROE) of 16% is expected to continue in the future. If you know that you can get a return of 15% per year if you buy the stocks of another company, Summer Vacation Corporation, as an investor, would you buy the stocks of Spring Break Corporation? Spring Break Corporation earned $10 million for the fiscal year ending yesterday. The firm also paid out 20% of its earnings as dividends yesterday and it will continue to pay out 20% of its earnings as annual, end of year dividends. The remaining 80% of earnings is retained by the company. Spring Break Corporation has 2 million shares of common stock outstanding. The current stock price is $85. The historical return on equity (ROE) of 16% is expected to continue in the future. If you know that you can get a return of 15% per year if you buy the stocks of another company, Summer Vacation Corporation, as an investor, would you buy the stocks of Spring Break Corporation?

Answer rating: 100% (QA)

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