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Payout and Plowback Ratio

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The common stock of Veritas Ltd. is currently trading at $ 48 on the TSX. You also know the following information about the Veritas stock: its P/E ratio is 16, Veritas Ltd. has a required rate of return of 10% on its common equity, and the company's dividends are expected to grow at 6% forever. What is Veritas' payout ratio today? What is Veritas' plowback ratio today?

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Solution Summary

The solution explains how to calculate the payout ratio and plowback ratio.

Solution Preview

Using the dividend discount model
Price = D1/(Required Return - Dividend Growth Rate)
48 = ...

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