Inc.’s return on equity is 14 percent and the management plans to retain 55 percent of earnings for investment purposes

Inc.’s return on equity is 14 percent and the management plans to retain 55 percent of earnings for investment purposes

Question 6: (5 points). (Measuring growth) If Pepperdine, Inc.’s return on equity is 14 percent and the management plans to retain 55 percent of earnings for investment purposes, what will be the firm’s growth rate? (Round to two decimal places.

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Question 7: (10 points). (Common stock valuation) The common stock of NCP paid $1.29 in dividends last year. Dividends are expected to grow at an annual rate of 6.00 percent for an indefinite number of years. (Round to the nearest cent.)

 

a. If your required rate of return is 8.70 percent, the value of the stock for you is:$
b. You (should/should not) make the investment if your expected value of the stock is (greater/less) than the current market price because the stock would be undervalued.

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