1) Patriot Scientific, Inc (PSI), in in the business of converting New York's sewage sludge into fertilizer. The business is not in itself very profitable. However, to induce PSI to remain in business, the Metropolitan District Commission (MDC) has agreed to pay whatever amount is necessary to yield CSI a 12% book return on equity. At the end of the year PSI is expected to pay a $5 dividend. It has been reinvesting 30% of earnings and growing at 4% a year.

1. Now the MDC announces a plan for PSI to treat Brooklyn sewage. PSI's plant will, therefore, be expanded gradually over five years. This means that PSI will have to reinvest 60% of its earnings for five years. Starting in year 6, however, it will again be able to pay out 70% of earnings. What will be PSI's stock price once this announcement is made and its consequence for PSI are known ?

2 Company Q's current return on equity (ROE) is 16%. It pays out 60 percent earnings as cash dividends (payout ratio of 0.60). Current book value per share is $62. 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 0.80. The cost of capital is 12.5%.

a) What are Q's EPS and dividends in years 1, 2, 3, 4, and 5?(Do not round intermediate calculations. Round your answers to 2 decimal places.)

b)What is Q's stock worth per share?(Do not round intermediate calculations. Round your answer to 2 decimal places.)