What payout ratio does your answer to part a simply

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1. ABC has an all-common-equity capital structure. It has 200,000 shares outstanding at a par of $2. Growth expectations recently have been lowered. Previously, it plowed back most of its earnings which earned 12% per year. The future growth rate will be 5% and dividends would increase. New investments that would earn a required 14% would amount to $800,000 in 2006; net income would be $2 million. If a 20% payout were continued, retained earnings would be $1.6million 2006. High earnings from existing assets are expected to continue. 

(a) Assuming that the acceptable 2006 projects would be financed by retained earnings during the year, Calculate DPS for 2006. 

(b) What payout ratio does your answer to part a simply for 2006? 

(c) If a 60% payout ratio is continued, what is your estimate of the present market price of the common stock? 

Reference no: EM13971185

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