Which of the following is true for a firm having a stock price of $42, and expected dividend of $3, and a sustainable growth rate of 8 percent?
A)It has a required return of 22 percent
B)It has a dividend payout ratio of 37.5 percent
C)It has an ROE of 7.14 percent
D)It has a plowback rate of 7.14 percent $42 = $3/(r - .08)

Question

Quizplus · Accepted Answer

Using the Gordon Growth Model (Dividend Discount Model), the required return (r) can be calculated as: $42 = $3 / (r - 0.08). Solving for r gives a required return of 22 percent.

Which of the Following Is True for a Firm Having