15. Constant-Growth Model. Eastern Electric currently pays a dividend of about $1.64 per share and sells for

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15. Constant-Growth Model. Eastern Electric currently pays a dividend of about $1.64 per share and sells for $27 a share. (LO3)

a. If investors believe the growth rate of dividends is 3% per year, what rate of return do they expect to earn on the stock?

b. If investors' required rate of return is 10%, what must be the growth rate they expect of the firm?

c. If the sustainable growth rate is 5% and the plowback ratio is .4, what must be the rate of return earned by the firm on its new investments?

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