Question 6

Suppose that the consensus forecast of security analysts of your favorite company is that earnings next year will be $5.00 per share. The company plows back 50% of its earnings and if the Chief Financial Officer (CFO) estimates that the company's return on equity (ROE) is 16%. Assuming the plowback ratio and the ROE are expected to remain constant forever:

Suppose that you are confident that 10% is the required rate of return on the stock. What does the market price of $50.00 per share imply about the markets estimate of the companys expected return on equity? (please give a number)