3.) Consider a firm with existing assets that generate an EPS of $5. If the firm does not invest except to maintain existing assets, EPS is expected to remain constant at $5 per share. However, starting next year, the firm has the opportunity to invest $3 per share a year in developing a newly discovered geothermal source for electricity production. These investments are expected to generate a permanent 20% return. However, the source will be fully develop by the 5th year. What will be the stock price and P/EPS ratio assuming investors require a 12% return? Show that this ratio is 0.20 if the required rate of return is 20%. --- 4.) Kenneth Cole's (KCP) had sales of $518 MM in 2010. Suppose you expect its sales to grow at 9% in 2011, but this rate will slow down by 1% per year to a long-run growth rate for the apparel industry of 4% by 2016. Based on KCP's past profitability and investment needs, you expect EBIT to be 9% of sales, increases in net working requirements to be 10% of any increase in sales, and capital expenditures to equal to depreciation expenses. If KCP has $10 MM in cash, $100 MM in debt at 6% interest rate and has 21 MM shares outstanding, a tax rate of 37% and a WACC of 11%, what is your estimate of the value of KCP's stock in early 2011