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stable dividend growth rate

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The "teacher" in this course thinks that by reading a module, that somehow I'll understand the logic to these questions. I have some of the formulas figured out, but I'm lost as to why I'm not getting the any of the options as answers.

ABC Co. pays out 60% of its earnings as dividends. Its return on equity is 15%. What is the stable dividend growth rate for the firm?

A. 9%
B. 5%
C. 6%
D. 15%

A bond is listed in The Wall Street Journal as a 12 3/4s of July 2009. This bonds pays:

A. $127.50 in July and January.
B. $63.75 in July and January.
C. $127.50 in July.
D. $63.75 in July.
E. None of the above.

A bond with a 7% coupon that pays interest semi-annually and is priced at par will have a market price of _____ and interest payments in the amount of _____ each.

A. $1,007; $70
B. $1,070; $35
C. $1,070; $70
D. $1,000; $35
E. $1,000; $70

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ABC Co. pays out 60% of its earnings as dividends. Its return on equity is 15%. What is the stable dividend growth rate for the firm?

A. 9%
B. 5%
C. 6%
D. 15%
b=1-Dividend payout ...

Solution Summary

Bonds & Growth Rates are investigated.

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Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years and in 2013 Boehm paid dividends of $2.6 million on net income of $9.8 million. However, in 2014 earnings are expected to jump to 12.6 million, and Boehm plans to invest $7.3 million in a plant expansion. This one-time unusual earnings growth won't be maintained, though, and after 2014 Boehm will return to its previous 8% earnings growth rate. Its target debt ratio is 35%.
a. Calculate Boehm's total dividends or 2014 under each of the following policies:
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2. It continues the 2013 dividend payout ratio.
3. It uses a pure residual policy with all distributions in a form of dividends (35% of the $7.3 million investment is financed with debt).
4. It employs a regular-dividend-plus-extras policy, with the regular dividend being based on the long-run growth rate and the extra dividend being set according to the residual policy.
b. Which of the preceding policies would you recommend? Restrict your choices to the ones listed, but justify your answer.
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