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I need to know how to calculate the Dividend and the retention ratio based on the information given.Assessment 8 – Megaware Case Study
Capella Course MBA-FP6018
The dividend growth model is used by many investors to value stock. Calculate the price of a share of Megaware stock today by using the following dividend growth model equation:
P0 = E1(1 Ã¢Ë†â€™ b) / Rs = ROE Ãƒâ€” b
The value of the stock equals next year’s dividends divided by the sustainable growth rate.
The dividend-payout ratio is 1 minus b, where b is the retention ratio. The dividend next year (P0) will be the earnings next year (E1) times 1 minus the retention ratio: P0 = E1(1 Ã¢Ë†â€™ b).
The sustainable growth rate (Rs) is the return on equity (ROE) times the retention ratio: Rs = ROE Ãƒâ€” b.
Based on your results, should Megaware pay a dividend or expand its manufacturing capability? Explain your decision.
The only known dollar amount in the problem is the company will receive an after-tax payment of $42 million for selling a piece of hardware and have been in business for 8 years.
I show my work in Excel so I need to know what numbers to plug in. Problem has me very confused.
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