Given the following information, what would the expected industry rate of return equal?
Retention rate= 80%
Net earnings estimate= $15.00/share
Multiple estimate= 22 -
Current earnings= $13.95/share -
Current multiple= 21 -
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A. B. C. D. E.C
Expected industry return = (Index estimate - Current index + Dividend) / Current index = (330 - 292.95 + $3.00) / 292.95 = 13.7%
Index estimate = $15.00 x 22 = 330
Current index = $13.95 x 21 = 292.95
Dividend = (1 - .80) x $15.00 = $3.00