Explore BrainMass

Explore BrainMass

    Rate of return / growth rate

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    In March 2004, Fly Paper's stock sold for about $73. Security analysts were forecasting a long-term earnings growth rate of 8.5 percent. The company is expected to pay a dividend of $1.68 per share.
    a. Assume dividends are expected to grow along with earnings at g= 8.5 percent per year in perpetuity. What rate of return r were investors expecting?
    b. Fly Paper was expected to earn about 12 percent on book equity and to pay out about 50 percent of earnings as dividends. What do these forecasts imply for g? For r? Use the perpetual-growth DCF formula

    © BrainMass Inc. brainmass.com June 3, 2020, 10:12 pm ad1c9bdddf
    https://brainmass.com/business/business-management/rate-of-return-growth-rate-220471

    Solution Preview

    a. Assume dividends are expected to grow along with earnings at g= 8.5 percent per year in perpetuity. What rate of return r were investors expecting?

    Use the dividend ...

    Solution Summary

    The solution explains how to calculate the rate of return and the growth rate

    $2.19

    ADVERTISEMENT