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EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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What is the correct answer of this financial accounting question following requirements?
![Rubenstein Bros. Clothing is expecting to pay an annual dividend per share of $0.9 out of
annual earnings per share of $5. Currently, Rubenstein Bros.'s stock is selling for $16.50 per
share. Adhering to the company's target capital structure, the firm has $8 million in total
invested capital, of which 40% is funded by debt. Assume that the firm's book value of
equity equals its market value. In past years, the firm has earned a return on equity (ROE)
of 19%, which is expected to continue this year and into the foreseeable future.
a. Based on this information, what long-run growth rate can the firm be expected to
maintain?
b. What is the stock's required return?](https://content.bartleby.com/qna-images/question/3c82ee05-45b5-4a29-aca2-eb6ec4425722/458df74d-b915-4ea1-8c83-d59c2f4e298d/oi5xvc8_thumbnail.jpeg)
Transcribed Image Text:Rubenstein Bros. Clothing is expecting to pay an annual dividend per share of $0.9 out of
annual earnings per share of $5. Currently, Rubenstein Bros.'s stock is selling for $16.50 per
share. Adhering to the company's target capital structure, the firm has $8 million in total
invested capital, of which 40% is funded by debt. Assume that the firm's book value of
equity equals its market value. In past years, the firm has earned a return on equity (ROE)
of 19%, which is expected to continue this year and into the foreseeable future.
a. Based on this information, what long-run growth rate can the firm be expected to
maintain?
b. What is the stock's required return?
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