Rubenstein Bros. Clothing is expecting to pay an annual dividend per share of $1

Question

Rubenstein Bros. Clothing is expecting to pay an annual dividend per share of $1.5 out of annual earnings per share of $3.25. Currently, Rubenstein Bros.' stock is selling for $16.50 per share. Adhering to the company's target capital structure, the firm has $8 million in assets, of which 50% is funded by debt. Assume that the firm's book value of equity equals its market value. In past years, the firm has earned a return on equity (ROE) of 12%, which is expected to continue this year and into the foreseeable future.

Explanation / Answer

Rubenstein Bros. Clothing is expecting to pay an annual dividend per share of $1.5 out of annual earnings per share of $3.25. Currently, Rubenstein Bros.' stock is selling for $16.50 per share. Adhering to the company's target capital structure, the firm has $8 million in assets, of which 50% is funded by debt. Assume that the firm's book value of equity equals its market value. In past years, the firm has earned a return on equity (ROE) of 12%, which is expected to continue this year and into the foreseeable future.

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