Answer:
a) Growth rate of earnings
using the sustainable growth rate formula which is the maximum growth rate that a company can sustain without external financing:
Growth rate = ROE * (1 - retention rate)
= 15% * (1 - 40%)
= 15% * 60%
= 9%
(Retention rate = 2/5 * 100 = 40%)
b) Price of equity using dividend growth model:
P₀ = D₀ (1 + g) / (re – g)
D₀ = the current dividend (whether just paid or just about to be paid) = $3
g = the expected dividend future growth rate = from A above (9%)
re = the cost of equity = 12%
= 3 (1 + 0.09) / (0.12 - 0.09)
= $109
c) Price of equity
P₀ = D₀ (1 + g) / (re – g)
= 4 (1 + 0.09) / (0.12 - 0.09)
= $145.33
Explanation:
At the estimated growth rate of 9%, should DFB increase the dividend payout, the price of equity would amount to $145.33 which is higher than the previous price of $109, so DFB is advised to raise its dividend
After-tax net income divided by the average amount invested in a project is the accounting rate of return.
Net Income After Tax (NIAT) is a financial term used to describe a company's profit after all taxes have been paid. Net income after tax represents profit or profit after deducting all expenses from income. Net income is calculated by subtracting all expenses from income.
Net income is usually synonymous with profit as it is the ultimate measure of a company's profitability. Net income is also called net income because it represents the net profit that remains after all expenses and expenses are deducted from the income.
Learn more about net income at
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Who owns the factors of production
B. Households
The answer to this question is "PUBLICITY". Hence when King's crown, a beverage company launches a new energy drink, it sponsors a marathon in the city as part of its promotional strategy. Moreover, it issues a press release about the sponsorship and persuades the media reporters of different newspapers to print it. This King's crown is generating a PUBLICITY to get people's attention and to make their new energy drink known.
