HomeworkLib
Question

Investors require a return of 12% from ABC, Inc. The company expect to have EPS of...

Investors require a return of 12% from ABC, Inc. The company expect to have EPS of $1.25, which will be growing at a 5% rate per year. And the company's retention ratio is 40%. How much percentage higher the ABC's return on equity will be than its required rate of return?

Multiple Choice

  • 2%

  • 1.5%

  • .5%

  • 1%

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Required return = 12 % EPS = 1.25 growth = 5%. Retention ratio = 40% growth = Return on Equity & Retention ratio 5% = Return

0 0
Add a comment
Know the answer?
Add Answer to:
Investors require a return of 12% from ABC, Inc. The company expect to have EPS of...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 1. ABC, Inc. is expected to pay an annual dividend per share of $2.80, and investors require a rate of return on S&P...

    1. ABC, Inc. is expected to pay an annual dividend per share of $2.80, and investors require a rate of return on S&P500 index is 12%, with the T-bill rate at 6%. What should be the current share price of ABC's stock if ABC's beta is 1.7, with a growth rate of 5%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 2. If firm A has a higher plowback ratio than firm B, then firm A...

  • 1. ABC, Inc., just paid a dividend of $1.36, and the company expect to grow its...

    1. ABC, Inc., just paid a dividend of $1.36, and the company expect to grow its dividend at a constant rate of 4%. What is ABC's required rate of return if its today's value based on the dividend discount model is $34.66, ? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 2. a. The common stock of Russel, Corp. is currently selling at $60 and investors require a rate of return of 16%. Russel is expected...

  • ABC, Inc. is expected to pay an annual dividend per share of $3.50, and investors require...

    ABC, Inc. is expected to pay an annual dividend per share of $3.50, and investors require a rate of return on S&P500 index is 10%, with the T-bill rate at 5%. What should be the current share price of ABC's stock if ABC's beta is 1.6, with a growth rate of 6%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Share Price = ?

  • Il 12. Based on the information below, what is the firm's optimal capital structure? A. Debt 40%; Equity 60%; EPs-$2.95; Stock price = S26.50. B. Debt-30%; Equity : 50%; EPS-S3.05: Stock prices S...

    Il 12. Based on the information below, what is the firm's optimal capital structure? A. Debt 40%; Equity 60%; EPs-$2.95; Stock price = S26.50. B. Debt-30%; Equity : 50%; EPS-S3.05: Stock prices S28.90. C. Debt-: 60%; Equity 40%; EPS-$3.18: Stock price-S3120. D. Debt = 70%; Equity-30%; EPs-$3.31; Stock price-$30.00. E. Debt-80%; Equity-20%; EPs-S3.42; Stock price-S3040. 13, ABC Co.'s current stock beta is 1.25. Its tax rate is 35%, and it currently uses 55% debt and 45% equity. If the management...

  • Investors require a 10% return from Sommers, Inc. The company's return on equity is 16%, and expects to have an earnings...

    Investors require a 10% return from Sommers, Inc. The company's return on equity is 16%, and expects to have an earnings per share of $6 next year. The company ususally plowback 60% of its earnings for future growth. What is the current value of Sommers' stock? (Do not round intermediate calculations.) Price = ?

  • Sheng, Inc. expect to have 21% of return on equity each year. The company's dividend payout...

    Sheng, Inc. expect to have 21% of return on equity each year. The company's dividend payout ratio is 50%, and it just announced its EPS of $20. Sheng just paid its dividends this year. If Sheng has a beta of 2.1 and the T-bill's return is 10.0%, with investors expect S&P500 to earn a return of 15%. What will be your holding-period return if you hold Sheng's common stock for one year? (Do not round intermediate calculations. Round your answer...

  • Sheng, Inc. expect to have 21% of return on equity each year. The company's dividend payout...

    Sheng, Inc. expect to have 21% of return on equity each year. The company's dividend payout ratio is 50%, and it just announced its EPS of $20. Sheng just paid its dividends this year. If Sheng has a beta of 2.1 and the T-bill's return is 10.0%, with investors expect S&P500 to earn a return of 15%. What will be the price per share one year from now if Sheng's current market price per share is $109, and people expect...

  • Question 6 You are considering an investment in ABC company and compile the following information on...

    Question 6 You are considering an investment in ABC company and compile the following information on its stock • The market price for the stock is $225/share • The LTM EPS is $15. • Over the past year, ABC paid dividends per share of $12. • The company's P/E is 15, P/B is 15, and P/S is 0.8. • The ROE is 20%, and the profit margin on sales is 10%. • The Treasury bond rate is 4%, the equity...

  • PLEASE SHOW HOW TO DO IN EXCEL 9-12 VALUATION OF A CONSTANT GROWTH STOCK Investors require...

    PLEASE SHOW HOW TO DO IN EXCEL 9-12 VALUATION OF A CONSTANT GROWTH STOCK Investors require an 8% rate of return on Mather Company's stock (i.e., r = 8%). a. What is its value if the previous dividend was D. = $1.25 and investors expect divi- dends to grow at a constant annual rate of (1) - 2%, (2) 0%, (3) 3%, or (4) 5%? b. Using data from part a, what would the Gordon (constant growth) model value be...

  • 4. A company has a stock price of $53. Investors require a return of 12 %...

    4. A company has a stock price of $53. Investors require a return of 12 % a year. The company plans to pay a dividend of $3.15 next year. What is the expected growth rate for the company's stock price given that the rate is expected to continue into perpetuity? 5. A company has a stock price of $65. The required return is 11% a year. The company maintains a constant dividend growth rate of 4.5 % a year into...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT