Bob$$s Rawhide Company has a dividend payout ratio of $45\%.$ Next year it will earn $$0\mathrm{.}75$ per share and have a return on equity

of $12\%.$ The shareholders$$ required return is $8\%.$

Calculate the company$$s growth rate of EPS.

Using the earnings model, what is the value of the stock?

Construct a data table that shows how the growth rate and value of the stock will change if the ROE ranges between $10\%$ and

$20\%,$ in $1\%$ increments. Now, using that data, create a scatter chart to show the relationship between the value of the stock

and the ROE. Is the relationship linear? At what point does the model break down?

Using the constant$-$growth model, what is the value of the stock?See Ch $9-$ The Earnings Model

Spring $2021-$ BUS$344$