What must be the rate of return earned by the firm

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Reference no: EM131873472

Eastern Electric currently pays a dividend of about $1.91 per share and sells for $31 a share.

a. If investors believe the growth rate of dividends is 2% per year, what rate of return do they expect to earn on the stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b. If investors' required rate of return is 15%, what must be the growth rate they expect of the firm? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

c. If the sustainable growth rate is 4% and the plowback ratio is 0.4, what must be the rate of return earned by the firm on its new investments? (Enter your answer as a percent rounded to 2 decimal places.)

Reference no: EM131873472

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