=1/ A company is considering the following:

Year 0 1 2 3 4 5 Cash flow −100 −10 0 0 10 150 which can be financed with equity:

Year 0 1 2 3 4 5 Debt/Equity 30% 22% 22% 22% 22% 22%

EPS 10 8.25 9.1 10.3 11.8 13.6 EPS growth rate −17.5% +10% +13% +15% +15%

Rate of return on equity 15% 11% 11% 11.4% 11.6% 12%

or with debt:

Year 0 1 2 3 4 5 Debt/Equity 30% 67% 67% 67% 67% 67%

EPS 10 9.3 10.4 12 14.1 16.5 EPS growth rate −7% +12% +15% +17% +17%

Rate of return on equity 15% 14% 17% 18% 21% 22%