Problem
Bob's Rawhide Company has a dividend payout ratio of 65%. Next year it will earn $1.25 per share and have a return on equity of 11%. The shareholders' required return is 8%
• Calculate the company's growth rate of EPS.
• Using the earnings model, what is the value of the stock?
• Construct a data table that shows how the growth rate and value of the stock will change if the ROE ranges between 10% and 30%, in 1% increments. Now, using that data, create a scatter chart to show the relationship between the value of the stock and the ROE. Is the relationship linear? At what point does the model break down?
• Using the constant-growth model, what is the value of the stock?
The response must include a reference list. One-inch margins, double-space, Using Times New Roman 12 pnt font and APA style of writing and citations.