Eastern Electric currently pays a dividend of about $1.65 per share and sells fo

Question

Eastern Electric currently pays a dividend of about $1.65 per share and sells for $30 a share.

a: If investors' required rate of return is 10%, what must be the growth rate they expect of the firm? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places)

  Growth rate

???????? %

b.

If the sustainable growth rate is 6% and the plowback ratio is .4, what must be the rate of return earned by the firm on its new investments? (Enter your answer as a percent rounded to 2 decimal places.)

  Rate of return

????? %

(1.5 is NOT correct)

  Growth rate

???????? %

Explanation / Answer

P0= DPS0(1+g)/Ke-g Therefore, 30=1+g/.10-g So, Growth= 4.265%

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