Apprange plc pays dividends that are expected to grow at 12 percent each year. These will stop in year five, at which point the company will pay out all its earnings as dividends. Next years dividend is 10 and its EPS at the time will be 15. If the appropriate discount rate on Apprange shares is 11 percent, what is its share price today?

(15 marks)

b If Apprange plc were to distribute all its earnings, it could maintain a level dividend stream of 15 per share. How much is the market actually paying per share for growth opportunities?

(15 marks)

c Explain how the Price/Earnings (P/E) ratio is related to the growth expectations of the firm. If the firm reduces its retention ratio, how would you expect this to impact the P/E ratio (no need for any calculations)?

(10 marks)

d How would you value a firm that pays no dividends? Explain, using an example to illustrate your answer.