Eastern Electric currently pays a dividend of about $1.96 per share and sells for $33 a share. a. If investors believe the growth rate of dividends is 4% per year, what is the opportunity cost of capital? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Cost of Capital % b. If investors' opportunity cost of capital is 10%, what must be the growth rate they expect of the firm? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Growth rate 1% c. If the sustainable growth rate is 5% and the plowback ratio is .5, what must be the return on equity ROE? (Round your answer to 2 decimal places.)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Eastern Electric currently pays a dividend of about $1.96 per share and sells for $33 a
share.
a. If investors believe the growth rate of dividends is 4% per year, what is the opportunity
cost of capital? (Do not round intermediate calculations. Round your answer to 2
decimal places.)
Cost of Capital
b. If investors' opportunity cost of capital is 10%, what must be the growth rate they
expect of the firm? (Do not round intermediate calculations. Round your answer to 2
decimal places.)
Growth rate
c. If the sustainable growth rate is 5% and the plowback ratio is .5, what must be the
return on equity ROE? (Round your answer to 2 decimal places.)
Transcribed Image Text:Eastern Electric currently pays a dividend of about $1.96 per share and sells for $33 a share. a. If investors believe the growth rate of dividends is 4% per year, what is the opportunity cost of capital? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Cost of Capital b. If investors' opportunity cost of capital is 10%, what must be the growth rate they expect of the firm? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Growth rate c. If the sustainable growth rate is 5% and the plowback ratio is .5, what must be the return on equity ROE? (Round your answer to 2 decimal places.)
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