A firm is earning $8 per year. It can earn .20 (after corporate tax) on reinvested funds. Based on a constant dividend the firm's value is $40.27. If the funds are reinvested the firm's value after five years is estimated at

The investor has a .20 capital gains tax rate and a .07248 after tax opportunity cost for capital.
What is the value of this stock if the tax basis is $40.27? Assume the investor sells at time 5.

Transcribed Image Text:

Ps (1.20) 40.27 = $100.20