Answer:
Stock price = $240.
Explanation:
Here,
Plowback ratio is the ratio which estimates the amount of money a company retains after paying the dividend to the stockholders.
To calculate the stock price, the plowback ratio is the growth rate for the firm.
Here, Expected earn, D1 = $6; ROE = 15% = 0.15; Plowback Ratio = 60% = 0.60; Market capitalization rate, K = 10% = 0.10.
We know,
Stock price = [tex]D_{1} / (K - g)[/tex]
Stock price = [tex]\frac{D_{1} (1 - plowback ratio)}{Market capitalization rate - (ROE * plowback ratio)}[/tex]
Stock price = [tex]\frac{6 (1 - 0.60)}{0.10 - (0.15*0.60)}[/tex]
Stock price = $2.4/0.01 = $240
