QUESTIONS 79 THROUGH 90 RELATE TO EQUITY INVESTMENTS

85. An analyst gathers the following data about a company:

Stock price $40

Stock’s required return 12%

Consensus estimate of next year’s dividend $2.00

Company’s return on equity 10%

Using the dividend discount model, the company’s dividend payout ratio is

closest to:

A. 5%.

B. 30%.

C. 70%.