Current return on equity

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Company Q’s current return on equity (ROE) is 13%. The firm pays out 45 percent of its earnings as cash dividends. (payout ratio = .45). Current book value per share is $58. 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 11.0% and the payout ratio increases to .80. The cost of capital is 11.0%. a. What are Q’s EPS and dividends in years 1, 2, 3, 4, and 5? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Year EPS Dividends 1 $ 8.08 $ 3.64 2 $ 8.66 $ 3.90 3 $ 9.28 $ 4.18 4 $ 9.94 $ 4.47 5 $ $ b. What is Q’s stock worth per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock worth per share $

Reference no: EM132070902

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