Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Barbacoa United Fashion Ltd expects earnings this year of $5.28 per share, and it plans to pay a $3.71 dividend to shareholders. Barbacoa United

image text in transcribed

Barbacoa United Fashion Ltd expects earnings this year of $5.28 per share, and it plans to pay a $3.71 dividend to shareholders. Barbacoa United Fashion will retain $1.57 per share of its earnings to reinvest in new projects which have an expected return of 15.6% per year. Suppose Barbacoa United Fashion will maintain the same dividend payout rate, retention rate and return on new investments in the future and will not change its number of outstanding shares. (a) Barbacoa United Fashion's growth rate of earnings is (Round your answer to four decimal places) % (b) If Barbacoa United Fashion's equity cost of capital is 12.5%, then Barbacoa United Fashion's share price will be (Round your answer to the nearest cent) (c) If Barbacoa United Fashion paid a dividend of $4.39 per share this year and retained only $0.89 per share in earnings. That is, it chose to pay a higher dividend instead of reinvesting its profits in as many new projects as it was going to under its original plan. If Barbacoa United Fashion maintains this new, higher payout rate in the future, then Barbacoa United Fashion's share price would be $ (Round your answer to the nearest cent)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Legal Environment Today Summarized Case Edition

Authors: Roger LeRoy Miller

8th Edition

130526276X, 978-1305279407, 1305279409, 978-1305704930, 1305704932, 978-1305262768

More Books

Students also viewed these Finance questions