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09: Assignment - Stocks and Their Valuation 7. Constant growth rates One of the most important components of stock valuation is a firm's estimated growth rate Financial statements provide the information needed to estimate the growth rate. Consider this case: Robert Gillman, an equity research analyst at Gllman Advisors, believes in efficient markets. He has been following the mining Industry for the past 10 years and needs to determine the constant growth rate that he should use while valuing Pan Asia Mining Co. Robert has the following information available: Pan Asia Mining Cols stock (Ticker: PAMC) is trading at $22.50. The company has forecasted net income and book value of equity for the coming year to be $1,420,200 and $11,115,000, respectively The company has also been paying dividends for the past eight years and has maintained a dividend payout ratio of 45.000000 Based on this information, Robert's forecast of PAMC's growth rate in carings and dividends should be 31.959 8.62% 28.75 7.03% Which of the following statements accurately describes the relationship between earnings and dividends when all other factors are held constant? Long-run earnings growth occurs primarily because firms pay dividends to reward their shareholders for investing in the company Retaining a higher percentage of earnings will result in a higher growth rate Growth in earnings requires growth in dividends