Task: Eastern Electric currently pays a dividend of about $1.72 per share and sells for $31 a share.
Problem 1: If investors believe the growth rate of dividends is 3% per year, what rate of return do they expect to earn on the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Rate of return _______%
Problem 2: If investors' required rate of return is 10%, what must be the growth rate they expect of the firm? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Growth rate _________ %
Problem 3: If the sustainable growth rate is 7% and the plowback ratio is .5, what must be the rate of return earned by the firm on its new investments? (Round your answer to 2 decimal places.)
Rate of return __________ %