Sidman Products' stock is currently selling for $60 a share. The firm is expected to earn $5.40 per share this year and to pay a year-end dividend of $3.60.
a. If investors require a 9 percent return, what rate of growth must be expected for Sidman?
b. If Sidman reinvests earnings in projects with average returns equal to the stock's expected rate of return, what will be next year's EPS? [Hint: g = ROE(Retention ratio).]