Question

28. Balfour corporation has a current stock price of $30. Next year's dividend is projected to be $3.00. The payout ratio is 30% and projected ROE is 10%. the cost of equity is:

1. 16%

2. 17%

3. 18%

4. None of the above

31. The present value of future cash flow per share is $50 for rose corporation. the current earnings-per-share is $5.00. the implied price-earnings ratio is:

1. 5

2. 10

3. 15

4. None of the above

Answer 1

28)

Dividend	3
Present stock price	30
Payout ratio	0.3
Retention Ratio (RR)	0.7
ROE	10%
Growth Rate	7% (ROE*RR )

Ke = (d/s)+g = 17%

31) Implied earnings ratio = 5/5*100 = 10%