Ten years have passed, and DataTap Inc. has grown to be a very successful company that Fred needs to expand. Recently, Fred decided to make DataTap public in order to raise capital for expansion. DataTaps most recent annual dividend was $1.64 per share and DataTap stock sells for $27 per share. DataTap as well as investors are confident the dividends will have a growth rate of 3% per year.

1. What rate of return should be expected on DataTap stock?

2. If an investor requires a rate of return of 10%, what growth rate will DataTap need to achieve?

1. If DataTap can have a sustainable growth rate of 5% and a plowback ratio of 0.4, what rate of return is DataTap earning on its new investments?