$2/$ You just got a new job as an investment banking analyst. At $7$:$15$ am$,$ your boss drops on

your desk the following report concerning three stocks:

In addition to this information, you know that the firms have constant retention ratios,

constant returns on investment and do not issue extra equity. The discount rate required by

investors is $15\%$ for the internet industry and $10\%$ for the metallurgic industry. Your boss

wants you to answer a couple of questions $($quantify your answers properly$).$

a$.$ "Which of these companies does the market think will grow more rapidly: Atrazon or

Yipee.com?"

b$.$ "One of our clients is thinking of issuing shares of his company, which is in Internet

Industry. The company has $100,000$ shares outstanding and current EPS of $10.$ The client

claims that his company should have the same $\frac{P}{E}$ ratio of $20$ as Atrazon. Is he correct? We

know that the company has managed so far to enjoy returns of $16\%$ on their investments

and is expected to do so in the future. If he sells the shares, he will implement a policy of

reinvesting $75\%$ of the firm's earnings in the business every year starting from this year."

c$.$ "The CEO of Old Steel Co$.$ has just called me$.$ The ROE of the company has recently been

as low as $8\%.$ He has been recently criticized by the investment community, which wants

him to pay out as much money as possible to his investors. They claim he would create

value if he did so$.$ Are they right? Give me the numbers."