Valuing common stock
J. Pinkman Motors, Inc., paid a $3.75 dividend last year.
If J. Pinkman’s return on equity is 24 percent and its retention rate is 25 percent,
what is the value of the common stock if the investors require a 20 percent rate of
return?
Homework Answers
Sustainable growth rate = ROE * Retention Rate
Sustainable growth rate = 24% * 25% = 6%
This question requires application of constant growth dividend discount model
Div1 = $3.75 * (1 + 6%) = $3.975
please show work and help with all three questions (Related to Checkpoint 10.1) (Common stock valuation)...
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