1. 2. Timmerman Inc.'s shares have a market value of 20 per share and a book value of 12 per share. If the cost of equity capital is 15% and the book value is expected to grow at 5% per year indefinitely, what is the market's assessment of the steady state return on equity? If the share price in (1) increases to 35 and the market does not expect Timmerman Inc.'s growth rate to change, what is the revised steady state ROE? If instead the price increase was due to an increase in the market's assessed long-term book value growth, rather than long-term ROE, what would the price revision imply for the steady state growth rate? Analysts reassess Timmerman Inc.'s future performance as follows: growth in book value increases to 12 percent per year, but the ROE of the incremental book value is only 15 percent. What is the impact on the market-to-book ratio? 3