Sidman Products\' common stock currently sells for $69 a share. The firm is expe

Question

Sidman Products' common stock currently sells for $69 a share. The firm is expected to earn $7.59 per share this year and to pay a year-end dividend of $2.70, and it finances only with common equity. a.If investors require a 11% return, what is the expected growth rate? Round your answer to two decimal places. % b.If Sidman reinvests retained earnings in projects whose average return is equal to the stock's expected rate of return, what will be next year's EPS? (Hint: g = (1 - Payout rate)(ROE).) Round your answer to the nearest cent.

Explanation / Answer

Div=$2.7 EPS=$69 payout ratio=div/EPS=0.0391 retained earning ratio=1-payout ratio=0.96 growth rate= retained earning ratio * return rate=10.57%

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