#13 Hunter corporation had a dividend payout ratio of 63% in 1999.the retention rate in 1999 was.
a)37% d)0%
b)63% e)100%
c)50%
#14 The beta for the DAK corporation is 1.25. If the yield on 30 year T-bonds is 5.65%, and the long term average return on the S&P 500 is 11%. Calculate the required rate of return for DAK Corporation.
a)12.34% b)7.06% c)13.74% d)5.35% e)5.65%
#15 Tayca corporation has just paid dividends of $3 per share. The earning per share for the company was $4. If you believe that the appropriate discount rate is 15% and the long term growth rate in dividends is 6%, and earning is 6%, the firm’s P/E ratio is
a)8.33 b) 33.33 c)44.44 d)11.11 e) none of the above
#13 To calculate the retention rate, you need to subtract the dividend payout ratio from 100% (since it represents the portion of earnings not paid out as dividends).
Dividend Payout Ratio = 63%
Retention Rate = 100% - 63% = 37%
So, the correct answer is (a) 37%.
#14 To calculate the required rate of return for DAK Corporation, you can use the Capital Asset Pricing Model (CAPM) formula:
Required Rate of Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)
Risk-Free Rate = Yield on 30-year T-bonds = 5.65%
Market Return = Long-term average return on the S&P 500 = 11%
Beta for DAK Corporation = 1.25
Required Rate of Return = 5.65% + 1.25 * (11% - 5.65%)
Calculating the expression within the parentheses:
(11% - 5.65%) = 5.35%
Required Rate of Return = 5.65% + 1.25 * 5.35%
Required Rate of Return = 5.65% + 6.69%
Required Rate of Return ≈ 12.34%
So, the correct answer is (a) 12.34%.
#15 To calculate the P/E ratio for Tayca Corporation, you can use the formula:
P/E Ratio = Price per Share / Earnings per Share
Given:
Dividends per Share = $3
Earnings per Share = $4
Discount Rate = 15%
Long-term Growth Rate in Dividends and Earnings = 6%
First, calculate the price per share using the Gordon Growth Model formula:
Price per Share = Dividends per Share / (Discount Rate - Growth Rate)
Price per Share = $3 / (15% - 6%)
Price per Share ≈ $3 / 9%
Price per Share ≈ $33.33
Next, calculate the P/E ratio using the given earnings per share:
P/E Ratio = $33.33 / $4
P/E Ratio ≈ 8.33
So, the correct answer is (a) 8.33.