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Stormy Weather Plowback or retention ratios: stock price

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Stormy Weather has no attractive investment opportunities. Its return on investment (ROE) is equal to the discount rate which is 10 percent. Its expected earnings this year are $3 per share. Find the stock price and growth rate of dividends for plowback ratios (retention ratios) of:

a. Zero
b. 5%
c. 10%
d. 15%

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Solution Summary

This solution uses brief calculations and formula to show how to calculate the stock price by using the dividend discount model.

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a) EPS=$3.00
ROE=10%
r=10%
b=0, ...

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