Estimate the new expected growth rate

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You have been asked to estimate the expected growth in earnings in MNL Bank, a regional bank that reported $2 in earnings per share in the most recent year on a book value of equity, per share, of $10. The firm paid out $0.50 in dividends per share. Assume that the banking crisis will create the following changes: the firm will be required to raise its equity capital by 50% immediately by regulatory authorities, to set aside 20% of earnings each period to cover bad loans and to suspend dividend payments for the next 5 years. Estimate the new expected growth rate in earnings per share.

Reference no: EM132403315

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