You expect KT industries (KTI)will have earnings per share of $3 this year and expect that they will pay out $1.50 of these earnings to shareholders in the form of a dividend.KTI's return on new investments is 15% and their equity cost of capital is 12%.The value of a share of KTI's stock is closest to:

Question

Quizplus · Accepted Answer

C) g = retention rate × return on new investment = (3.00 - 1.50) / 3.00 × .15 = .075 or 7.5% P₀ = Div₁ / (r_E - g) = 1.50 / (.12 - .075) = 33.33

You Expect KT Industries (KTI)will Have Earnings Per Share of $3