High Tech Chip Company paid a dividend last year of $2.50.The expected ROE for next year is 12.5%.An appropriate required return on the stock is 11%.If the firm has a plowback ratio of 60%,the dividend in the coming year should be

Question

Quizplus · Accepted Answer

The dividend growth rate (g) can be calculated as ROE * plowback ratio = 12.5% * 60% = 7.5%. The dividend in the coming year is last year's dividend multiplied by (1 + g): $2.50 * 1.075 = $2.6875, which rounds to $2.69.

High Tech Chip Company Paid a Dividend Last Year of $2.50.The