Question
1. The company has just reported earnings per share of 5. The company forecasts a growth rate of earnings and dividends of 8% for the
1. The company has just reported earnings per share of 5. The company forecasts a growth rate of earnings and dividends of 8% for the next three years, after which, it is expected that growth will stabilise to 4% for the foreseeable future. The dividend payout ratio of the company is 45% of its earnings with the remainder retained for reinvestment. Investors demand a return of 12% on the firm's shares.
a. Calculate the current share price.
b. If the share price of this company next year is 35.12, what is the actual observed return on the company's shares over the one-year period?
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