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 shares is 14%. If the firm has a plowback ratio of 70%, its dividend in the upcoming year should be ________.

Question

Quizplus · Accepted Answer

Dividend payout ratio = (1 - plowback ratio) 
Dividend = EPS x Dividend payout ratio

Plowback ratio = 70%, therefore dividend payout ratio = 1 - 0.70 = 0.30

Dividend = $8.00 x 0.30 = $2.40

Therefore, the dividend in the upcoming year should be $2.40. Answer choice C is the correct answer.

Rose Hill Trading Company Is Expected to Have EPS in the Upcoming