Return on investment

Hello Sir,

The following question is quite straight forward to answer, but I have some confusion about the how to differentiate between the required return and the return on investment in the data given.

specially if you look to Gordon’s growth approximation g=bre

and The Growth Model

Po=Do(1+g)/(re-g)

So both of them have “re”

but they are different

In Dividend growth model the re is the shareholders required return of capital

but in the Gordon growth it is the return on assets

So is that okay ?

Thanks.

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Q

The following data relates to an all equity financed company.   
Dividend just paid 
$50m
Earnings retained and invested 
70% 
Return on investments 
15% 
Cost of equity 
25% 
What is the market value of the company (to the nearest million dollars)? 
A  $381m 
B  $200m 
C  $221m 
D  $218m 

Answer is A