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A stock sells for $60. The next dividend will be $3 per share. If the rate of return earned on reinvested funds is 10% and the company has a payout ratio of 40% of earnings in the firm, what must be the discount rate (r)?

Respuesta :

tanseershar

Answer:

11%

Explanation:

MV=D1/(Ke-g)

Where MV=$60

D1=$3

Ke=?

g=r*b

r=10%

b=60%  as 40% profits are paid out therefore retained profits=1-.4=.6

Now g=r*b=10%*60%=6%

MV=D1/(ke-g)

60=3/(ke-.06)

60ke-3.6=3

Ke=(3+3.6)/60

Ke=11%

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