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A firm with return on equity 20% and beta 0.9 just distributed all its earnings ($12 per share) as dividends. The expected market return is
A firm with return on equity 20% and beta 0.9 just distributed all its earnings ($12 per share) as dividends. The expected market return is 15% and the risk-free rate is 5%. The firm can keep distributing all its earnings to shareholders each year or retain 25% for reinvestment.
What is the price of the stock, if all earnings are distributed as dividends moving forward?
a.
$64.3
b.
$133.3
c.
$120
d.
$60
e.
$71.4
f.
$85.7
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