#2. Using the constant-growth, dividend-discount model consider the following situations: Left Eye Enterprises (LEE), a subsidiary of the North Face Company, earned $50 million last year and the firm's return on equity (or rate of return on new investments) remains at its historical level of 12 percent. LLE retains 45 percent of its earnings. What is the firm's growth rate in earnings? What will next year's earnings be? CAUTION. Be careful about indexing the years! There are three years involved: last year, this year, and next year. Morgenstern Enterprises (ME) has just reported last year's earnings of $100 million and a retention rate of 70 percent. The company has 2.5 million shares of stock outstanding. The stock is selling at $125 per share. The historical return on equity of 10 percent is expected to continue in the future. What is the required rate of return on the stock (the market capitalization rate) using the constant-growth, dividend-discount model? CAUTION. Be careful about indexing the years