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What will be the company growth rate

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Reference no: EM132973083

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Q1. Common stock valuation - Wayne, Inc.'s outstanding common stock is currently selling in the market for $33. Dividends of $2.30per share were paid last year, return on equity is 20 percent, and its retention rate is 25 percent.

a. What is the value of the stock to you, given a 15percent required: rate of rectum?

b. Should you purchase this stock?

Q2. Measuring growth - Thomas, Inc.'s return on equity is 13 percent and management has plans to retain 20 percent of earnings for investment in the company.

a. What will be the company's growth rate?

b. Suppose the company last paid $3.00 per share and shareholder expect 9% return on their investment, would be willing to pay $35 per share? If not, how much would be willing to pay?

c. How would the growth rate change if management (i) increased retained earnings to 35percent or (ii) decreased retention to 13 percent? And how will the share price change for each of the scenarios?

Reference no: EM132973083

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