Company current return on equity

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Reference no: EM131870318

Company Q’s current return on equity (ROE) is 12%. The firm pays out 40 percent of its earnings as cash dividends. (payout ratio = .40). Current book value per share is $54. Book value per share will grow as Q reinvests earnings.

Assume that the ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 10.5% and the payout ratio increases to .80. The cost of capital is 10.5%.

a. What are Q’s EPS and dividends in years 1, 2, 3, 4, and 5?

b. What is Q’s stock worth per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Reference no: EM131870318

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