Assume that the constant growth rate dividend discount model can be applied.

You are given that the present value of growth opportunities (PVGO) for a firm is $5 per

share. Its beta is 2.25, and it expects to earn $2 per share next year. The risk-free rate is

2% per year and (EM -Rf), the market risk premium is 8%. The firm's earnings and

dividends are expected to grow at 10% per year in perpetuity.

(2 points each for a total of 16 points)

(a).

Work out the market capitalization rate for this firm.

(b).

Work out the Price of the firm's stock.

(c).

Work out the forward looking Price Earnings ratio for the firm.

(d).

Work out the retention ratio for the firm.

(e).

Work out the return on the book value of equity for this firm.

(f).

Work out the book value of equity per share for this firm.

(g).

Work out the Price to book ratio for this firm.

(h).

What other information will you need to be able to work out the Price to

Revenues ratio for the firm?