Eagle Brand Arrowheads has expected earnings of $1.25 per share and a market capitalization rate of 12%. Earnings are expected to grow at 5% per year indefinitely. The firm has a 40% plowback ratio. By how much does the firm's ROE exceed the market capitalization rate?

A) .5%
B) 1%
C) 1.5%
D) 2%

Question

Zybrea Knight · Accepted Answer

Final Answer : A, Explanation :   ROE = g/b = 0.05/0.4 = 12.5%; k is given as 12%, so ROE − k = 0.5%

Eagle Brand Arrowheads has expected earnings of $1.25 per share and a market capitalization rate of 12%. Earnings are expected to grow at 5% per year indefinitely. The firm has a 40% plowback ratio. By how much does the firm's ROE exceed the market capitalization rate?

A) .5%
B) 1%
C) 1.5%
D) 2%

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Eagle Brand Arrowheads has expected earnings of $1.25 per share and a market capitalization rate of 12%. Earnings are expected to grow at 5% per year indefinitely. The firm has a 40% plowback ratio. By how much does the firm's ROE exceed the market capitalization rate?A) .5%B) 1%C) 1.5%D) 2%

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Related questions

Eagle Brand Arrowheads has expected earnings of $1.25 per share and a market capitalization rate of 12%. Earnings are expected to grow at 5% per year indefinitely. The firm has a 40% plowback ratio. By how much does the firm's ROE exceed the market capitalization rate?

A) .5%
B) 1%
C) 1.5%
D) 2%