Question
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
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) *Make sure to input all percentage answers as numeric values without symbols, and use four decimal places of precision. For example, if the answer is 6%, then enter 0.0600.
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