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New all-equity financed company

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Suppose you started a new all-equity financed company that is expected to generate an ROE of 15% indefinitely. The current book value per share equals $30. The required return on the stock equals 12% and you expect to grow at a constant rate of 5% forever. What is the value of the stock of the startup company? Which part of this value is due to growth? And how can you explain the difference between the value of the stock and the book value per share? How would your answers change if the ROE generated by the firm would equal 10%? Motivate your answer and show your calculations.

Reference no: EM132347955

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