Rate of growth
Wichman Products' stock is currently selling for $60 a share. The firm is expected to earn $5.40 per share this year and to pay a year-end dividend of $3.60.
a. If investors require a 9 % return, what rate of growth must be expected for Wichman Products?
b. If Wichman Products reinvests retained earnings in projects whose average return is equal to the stock's expected rate of return, what will be next year's EPS? [Hint: g= (1 - Payout rate)(ROE).]