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Calculation of g and EPS
Spencer Supplies's 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 $2.20.
If investors require a 9% return, what rate of growth must be expected for Spencer? Round your answer to two decimal places.
%
If Spencer reinvests earnings in projects with average returns equal to the stock's expected rate of return, then what will be next year's EPS? (Hint: g = ROE × Retention ratio.) Round your answer to the nearest cent.
$
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