Dalton Inc. has a return on equity of 10.4 percent and retains 51 percent of its

Question

Dalton Inc. has a return on equity of 10.4 percent and retains 51 percent of its earnings for reinvestment imposes. It recently paid a dividend of $3.50 and the stock is currently selling for $42. What is the growth rate for Dalton Inc.? What is the expected return for Dalton's stock? If you require a 14 percent return, should you invest in the firm? What is the growth rate for Dalton Inc. ? What is the expected return for Dalton's stock? If you require a 14 percent return, should you invest in the firm? .

Explanation / Answer

Reyurn on Equity =ROE = 10.4% Retention Ratio= 51% Growth Rate =ROE*Retention Rate=g= 5.30% Current Dividend =D0=              3.50 Current Stock Price=P=                  42 Assume cost of equity=k= So P= D0(1+g)/(k-g) 42= 3.5*1.053/(k-0.053) 42k-2.226=3.686 k=14.08% So the expected return from stock =14.08% If I require a 14% return , I can invest   in the stock as the return is more   than the required rate.

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.