The Bobco Rawhide Company has a dividend payout ratio of 45%. Next year it will earn $3.25

Question:

The Bobco Rawhide Company has a dividend payout ratio of 45%. Next year it will earn $3.25 per share and have a return on equity of 14%. The shareholders' required return is 12%.

a. Calculate the company's growth rate of EPS.

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

c. Construct a table that shows how the value of the stock will change if the ROE ranges between 10% and 20%, in 1% increments. Remember that changing the ROE will also affect the growth rate. 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?

d. Using the constant-growth dividend discount model, what is the value of the stock?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...