A financial analyst with Mally, Feasance & Company is examining shares of Intelligent Semiconductor. Assume the following information:
Retention rate: 80%
EPS: $3.98 -
Discount rate: 12.35%
Tax rate: 35%
Beta coefficient: 1.5 -
Expected return on the market: 12.5%
Using this information, what is the expected growth rate of Intelligent Semiconductor? Choose the best answer.
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A. B. C. D. E. F.B
In order to determine the dividend growth rate of Intelligent Semiconductor, the following equation should be used:
{g = ROE(1 - Dividend Payout Ratio)}
While the Retention Rate of Dividends (which equals one minus the Dividend Payout Ratio) is provided, the ROE figure is not. Further, the ROE figure cannot be determined from this information provided. Therefore, the growth figure cannot be calculated. Remember that in determining dividend growth using the formula outlined above, neither the tax rate nor the discount rate is incorporated into the equation. Furthermore, the Beta Coefficient and the expected return on the market are largely irrelevant in this example.