Palmetto Steel, Inc. (PSI) maintains a dividend payout ratio of 80 percent because of its limited opportunities

Question:

Palmetto Steel, Inc. (PSI) maintains a dividend payout ratio of 80 percent because of its limited opportunities for expansion. Its return on equity is 15 percent. The required rate of return on PSI equity is 12 percent, and its long - term growth rate is 3 percent.
Compute the justified P/B based on forecasted fundamentals, consistent with the residual income model and a constant growth rate assumption.

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...

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