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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
The Bobco Rawhide Company has a dividend payout ratio of 45%. Next year it will earn $3.25 per share and have a return on equity of 14%. The shareholders’ required return is 12%
a. Calculate the company’s growth rate of EPS.
b. Using the earnings model, what is the value of the stock?
c. Construct a table that shows how the value of the stock will change if the ROE ranges between 10% and 20%, in 1% increments. Remember that changing the ROE will also affect the growth rate. 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?
d. Using the constant-growth dividend discount model, what is the value of the stock?
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