Robert Gillman, an equity research analyst at Gillman Advisors, believes in effi

Question

Robert Gillman, an equity research analyst at Gillman Advisors, believes in efficient markets, He has been following the mining industry for the past 10 years and needs to determine the constant-growth rate that he should use while valuing Pan Asia Mining Co.

Robert has the following information available.

Pan Asia Mining co. the stock is trading at $17.50

The company's stock is expected to pay a year-end dividend of $0.84 that is expected to grow at a certain rate.

The stock's expected rate of return is 3.60%.

Based on the information just given, what will be Robert's forecast of PAMC's growth rate?

a.     2.99% b. 8.35% c. 5.40%   d. 3.60%

Which of the following statements accurately describes the relationship between earning and dividends when all other factors are held constant?

a.      growth in earning requires in dividends.

b.     long-run earnings growth occurs primarily because firms pay dividends to reward their shareholders for investing in the company

c. retaining a higher percentage of earning will result in a higher growth rate.

Explanation / Answer

stock price=dividend at year 1/(k-g)
17.5=0.84/(k-3.6%)
k=(0.84/17.5)+3.6%
=8.35%
it is option B
b)It is option C
growth rate=retention ratio*ROE

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

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