Rowell Products stock is currently selling for $60 per 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 Rowell? Assume the firm's growth rate is constant.
B) If Rowell reinvests its retained earnings in projects whose average return is equal to the stock's expected rate of return, what will be next year's EPS?