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(a) The table below lists some partial information about a firm. Assume that the number of shares outstanding stays constant forever. Year 0 1 2

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(a) The table below lists some partial information about a firm. Assume that the number of shares outstanding stays constant forever. Year 0 1 2 3 4 100 132.25 Book equity per share Earnings per share (EPS) Return on equity (ROE) Payout ratio Dividends per share Dividend growth rate 0.20 0.25 0.20 0.25 0.15 0.50 21.325 0.15 0.50 5 0.075 i. Fill in the missing values in the table from years 1 to 4. (6 marks) ii. Assume that after year 4, the company maintains its ROE and payout ratio at year 4 levels. The cost of capital is 12.5%. What is the fair price of the company's stock today (i.e. at t = 0)? (3 marks) iii. Suppose the company announces today that it expects any new investments made in or subsequent to year 4 to only earn the cost of capital. The values you calculated in part (i) will be unaffected by this announcement. By how much will the share price change today after the announcement? (4 marks)

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