What is Qs stock worth per share

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Question - Company Q's current return on equity (ROE) is 16%. It pays out 60 percent of earnings as cash dividends (payout ratio = 0.60). Current book value per share is $57. 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 12.5% and the payout ratio increases to 0.70. The cost of capital is 12.5%.

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?

Reference no: EM133060328

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