Question
Roland Corporations last dividend (D 0 ), which was paid yesterday, was $2.50. The firm has maintained a constant payout ratio of 50 percent during
Roland Corporations last dividend (D0), which was paid yesterday, was $2.50. The firm has maintained a constant payout ratio of 50 percent during the past 7 years. Seven years ago its EPS was $1.50. The firms beta coefficient is 1.2. The required return on an average stock in the market is 13 percent, and the risk-free rate is 7 percent. Rolands A-rated bonds are yielding 10 percent, and its current stock price is $30. Which of the following values is the most reasonable estimate of Rolands cost of retained earnings, ks?
a. 10% b. 12% c. 14% d. 20% e. 26%
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