The required rate of return on the new projects

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Reference no: EM131839775

A corporation has 10 million shares outstanding, selling currently at a price of $50 per share. The company expects earnings per share next year to be $7.5. The company retains one-third of each year's earning and reinvests these funds in projects with an expected return of 15%(thus, ROE is 15%). Suppose that, the company announced plans to retain an additional $3 per share for the next ten years. These additional funds will be invested in ten separate perpetual projects, each with an expected rate of return of 9%. The required rate of return on the new projects would be the same as the current required return. As a result of this announcement, this company's stock price will be?

Reference no: EM131839775

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