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A company currently has earnings (E0) of $5.00 and a dividend (D0) of $0.50. The firm's current return on equity (ROE) is 30%. The firm

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A company currently has earnings (E0) of $5.00 and a dividend (D0) of $0.50. The firm's current return on equity (ROE) is 30%. The firm will maintain the same dividend payout and ROE over the next two periods. Then it will transition in a linear reduction in years 3,4 , and 5 to a growth of 3%. The firm will then grow at 3% to perpetuity. The firm's beta is presently 1.8, but this will transition to 1 over the same period. The risk-free rate is 4% and the market risk premium is 6%. Constant growth ROE is expected to be 10%. What is the present value of this firm's equity using a threestage model with linear transition in years 3,4 , and 5 ? $65.12$76.19$72.19$84.56

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