Purchase Solution

Calculating the expected return on equity

Not what you're looking for?

Ask Custom Question

What return on equity do investors expect for a firm with a $17 stock price, a dividend in year one of $2.00, a beta of 1.6, and a constant growth rate of 2%?

1. 13.76%
2. 26.00%
3. 11.75%
4. 16.33%
5. 17.21%

Purchase this Solution
Solution Summary

Solution determines the expected return on equity in the given case.

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
  • "Thank you"
  • "Really great step by step solution"
  • "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
  • "Thanks Again! This is totally a great service!"
  • "Thank you so much for your help!"
Purchase this Solution
Free BrainMass Quizzes
Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

View More Free Quizzes
Related BrainMass Solutions

  • WACC, CAPM, Holding period returns

    A stock has a beta of 1.25, the expected return on the market is 11.5 percent, and the risk-free rate is 3.4 percent. What must the expected return on this stock be? 7. Calculating cost of equity.

  • Portfolio / Cost of Capital

    What is the expected return on the portfolio? 3.

  • Stock price using Constant-Growth Model

    Expected dividend growth= plowback ratio x Return on equity = (1-Payout ratio) x Return on equity Stock A plowback ratio = (1-Payout ratio)= 1/2 Return on equity=15% Therefore Expected dividend growth= 7.5%= 1/2 *15% Therefore expected

  • Cost equity estimates

    Ks = Krf + B(Km - Krf) Where, Ks = required rate of return Krf = Risk free rate B = Beta Km = Expected return on overall stock market For Accuray, B = 0.89 The current 3-year Treasury bill return is 1.625 The expected rate of return on the market

  • Investment Returns Calculations

    The tax rate is 35 percent. what is Fama's debt-equity ratio? Hi, Get the answer with attachment. Regards The real return on the bond is clearly evaluated in these 5 economics questions.

  • Conversion Value / WACC/ Terminal Value

    Terminal Value = Next years expected cash flow /(Required rate of return - growth rate) Terminal Value = 26,000/(20%-7%) = $200,000 The solution explains three problems - calculating the conversion value of a preferred stock, calculating the WACC and

  • Calculating expected return from levered capital

    So, expected return cannot be evaluated in isolation. A decision purely based on highest expected return will lead to making wrong decision.

  • Finding Asset Beta and WACC (CAPM Model)

    Solution: Firm's equity beta=0.80 Firms is all equity financed, it's asset beta=equity beta=0.80 From CAPM model, we know Ke=Krf+Beta*(Km-Krf) Where Ke=expected return Krf= risk free return=4% Km-Krf = market risk premium=10% Therefore

  • Calculating WACC to Assess Projects

    WACC=wd*rd*(1-T)+wp*rp+wc*rc=35%*9.5%*(1-40%)+5%*8%+60%*12.5%=9.90% Expected return on average risk projects should be above 9.90% Expected return on low risk projects should be above 9.90-2=7.9% Expected return

  • Capital Structure

    16.67% WACC Formula = B/B+S*rb + S/B+S*rs Where: B= Market Value of Debt S = Market value of Equity rb = Cost of Debt rs = expected return on portfolio C- What is the cost of capital for an otherwise identical all-equity firm?

View More Related Solutions