Abc has an roe of 20 and a plowback ratio of 80 ie earnings, Finance Basics

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Abc has an roe of 20 and a plowback ratio of 80 ie earnings

Question: Show work for a,b,c and d.

ABC has an ROE of 20% and a plowback ratio of 80% (i.e., earnings retention ratio b = .6). The coming year's earnings are expected to be $3.5 per share and the market capitalization rate is 14% (i.e., the cost of common equity k_e = .14).

(a) What will be the dividend per share in the coming year (D₁)?

(b) What is the sustainable growth rate, g?

(d) What price, V₂, do you expect ABC shares to sell for in two years?

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Finance Basics: Abc has an roe of 20 and a plowback ratio of 80 ie earnings

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Finance Basics: Abc has an roe of 20 and a plowback ratio of 80 ie earnings

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