Answer to Question #180411 in Finance for tejvar

Question #180411


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1. SOSU, Inc has before tax income this year is $900,000. The company’s payout ratio is 40%. The company's common equity currently has a book value of $5,000,000. They just paid a dividend of $1.87, and the required rate of return on this stock is 10%. Compute the value of this stock if dividends are expected to continue growing indefinitely at the company's internal growth rate. Tax rate = 28%.


1
Expert's answer
2021-04-19T18:46:07-0400

We will find it by the following formula:

net income (EPS)=4.675

RR=1-DPR=1-0.4=0.6


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