RTS, Inc. just paid a $4 dividend per share. Investors require a return of 15%, and RTS is expected to have a ROE of 13%...
RTS, Inc. just paid a $4 dividend per share. Investors require a return of 15%, and RTS is expected to have a ROE of 13%. What is the value of RTS common stock if it plans to maintain a 60% dividend payout ratio?
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$35.19
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$42.94
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$26.67
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$59.89
Homework Answers
growth rate = ROE * payout ratio
= 13% * 60%
= 7.8%
value = dividend next year/(Required return - growth rate)
= 4 * 1.078/(0.15 - 0.078)
= 59.89
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