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How much cash flow does the company earn in the first year

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XYZ Corporate starts with $20,000 book value of equity capital and zero debt. The ROE for the company is 15% and the required rate of return for the company is 12%. There are 500 shares outstanding. Now, XYZ Corporation decides that it will always reinvest 60% of earnings back in the company and pay out 40% of earnings each year in dividends to the shareholder. Thus, dividends for this company will grow at a constant rate.

Problem a. How much cash flow does the company earn in the first year?

Problem b. What are the earnings per share (EPS) in the first year?

Problem c. How much cash is paid out in dividends from the first-year earnings?

Reference no: EM132998949

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