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What return on equity for castro shareholders is closet to

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Reference no: EM132943352

Castro Inc. is one of the leading competitors of Therma. The analysts at Castro are analyzing the current dividend policy of the entity and reviewing it in the event of any needed amendments.

Castro is expected to pay a dividend of $7/share in 2020, $10/share in 2020 and $12/share in 2022. The share price of Castro on 31st December, 2021 and 31st December, 2022 is expected to be $190 and $220, respectively.

The discount rate applicable to Castro is 15%.

The company has a reported leverage ratio of 2.5 and total assets of $13 million. Net income and sales for the year ended 31st December, 2019 were $850,000 and $6,000,000, respectively.

Problem 1: Between 2020 and 2022, Castro's dividend is expected to grow at a compounded annual growth rate of:

A. 20%
B. 41%
C. 31%

Problem 2: The return on equity for Castro's shareholders is closest to:

A. 18.0%
B. 16.4%
C. 23.2%

Reference no: EM132943352

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