Brumby growth opportunities

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Brumby Growth Opportunities The annual earnings of Brumby Ltd will be $6 per share in perpetuity if the ?rm makes no new investments. Under such a situation the ?rm would pay out all of its earnings as dividends. Assume the ?rst dividend will be sent to stockholders exactly one year from now. Alternatively, assume that three years from now, and in every subsequent year in perpetuity, the company can invest 25 percent of its earnings in new projects. Each project will earn 20 percent at year-end in perpetuity. The firm's discount rate is 12 percent.

(a) What is the price per share of Brumby Ltd's stock today? Without the company making the new investment?

(b) What is the value of the investment stream?

(c) What is the per-share stock price if the ?rm undertakes the investment stream?

Reference no: EM133204739

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