Eastern Electric currently pays a dividend of about $1.95 per share and sells for $36 a share.
a. If investors believe the growth rate of dividends is 4% per year, what rate of return do they expect to earn on the stock
b. If investors' required rate of return is 12%, what must be the growth rate they expect of the firm?
c. If the sustainable growth rate is 4% and the plowback ratio is 0.2, what must be the rate of return earned by the firm on its new investments?