Question
An all-equity firm just paid $4 per share dividend and for foreseeable future, will reinvest 65% of its earnings in projects that are expected to
An all-equity firm just paid $4 per share dividend and for foreseeable future, will reinvest 65% of its earnings in projects that are expected to provide 10% RoR forever. If the treasury yield is 1.5%, the market risk premium is 7% and the firms beta is 1.5, then calculate the firms EPS and Share Price. What is the present value of the growth opportunities for the firm? If the growth can be achieved with debt at 5%, such that D:E ratio = 1:2, then what would the share price be? If needed, then assume that the firms income is subject to a 30% tax rate.
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