Lecture10extra_winter09

# Lecture10extra_winter09 - of earnings as dividends and...

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PROBLEM 25 CHAPTER 5

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Juggernaut Satellite earned \$10 million for the fiscal year ending yesterday. The firm also paid 25% of those earnings as dividends yesterday. The firm will continue to pay out 25% of earnings as dividends and retain the remaining 75%. The company has 1.25 million shares outstanding and the current stock price is \$40.
The historical RE is 11% and it is expected to continue in the future. Question: What is the required rate of return of the stock?

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Juggernaut Satellite earned \$10 million for the fiscal year ending yesterday . The firm also paid 25% of those earnings as dividends yesterday. The firm will continue to pay out 25%

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Unformatted text preview: of earnings as dividends and retain the remaining 75%. • The company has 1.25 million shares outstanding and the current stock price is \$40 . • The historical ROE is 11 % and it is expected to continue in the future . Step 1: find the last dividend per share paid by the firm. Step 2: find the growth rate of earnings and dividends. Step 3: Find the required rate of return for the stock. • Step 1 • Step 2: • Step 3: 2 \$ 25 . 1 25 . 10 \$ m m Div % 25 . 8 % 75 % 11 * b r g % 6625 . 13 % 25 . 8 % 4125 . 5 0825 . 40 \$ 0825 . 1 2 \$ 1 r g P Div r...
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Lecture10extra_winter09 - of earnings as dividends and...

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