Question

Rose Hill Trading Company is expected to have EPS in the upcoming year of $8.00. The expected ROE is 18.0%. An appropriate required return on the stock is 14%. If the firm has a plowback ratio of 30%, its dividend in the upcoming year should be

Answer 1

$5.6

Step-by-step explanation:

The computation of dividend in the upcoming year is shown below:-

Dividend in the upcoming year = EPS in the upcoming year × (1 - plowback ratio percentage)

= $8.00 × (1 - 30%)

= $8.00 × (1 - 0.3)

= $8.00 × 0.7

= $5.6

Therefore, for computing the dividend in the upcoming year we simply applied the above formula.