Maniac Corporation just paid a dividend of $2 on its current EPS of $6.Its projected net profit margin,asset turnover,and leverage ratio are 12.5 percent,2.5,and 0.6,respectively.What is Maniac's required rate of return if the current price is $34.60?

Question

Quizplus · Accepted Answer

Compute retention ratio = 1-$2/$6 = 66.667%,ROE = 12.5%*2.5*0.6 = 18.75%,G = 66.67%*18.75% = 12.5%,Then k_c = [$2*(1+12.5%)]/$34.6+12.5% = 19%

Maniac Corporation Just Paid a Dividend of $2 on Its