# Answer to Question #51317 in Finance for mohammed abdu

Question #51317

Sweatshirt Inc’s ROE is 20%. It’s dividend payout ratio is 70%. The last dividend, just

paid, was RM2.00. If its dividends are expected to grow at the company's internal

growth rate indefinitely, what is the current value of the company's common stock if

its required return is 18%?

paid, was RM2.00. If its dividends are expected to grow at the company's internal

growth rate indefinitely, what is the current value of the company's common stock if

its required return is 18%?

Expert's answer

ROE = 20%, dividend payout ratio is 70%, required return is 18%. The last dividend was RM2.00. If its dividends are expected to grow at the company's internal growth rate indefinitely, the current value of the company's common stock is: P = div0/(r - g) = 2/(0.18 - 0.2*0.7) = RM50. The formula for the present value of a stock with constant growth is the estimated dividends to be paid divided by the difference between the required rate of return and the growth rate.

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