(Common stock valuation)Assume the following

the investor's required rate of return is 14 percent

the expected level of earnings at the end of this year ( E1 ) is $10

the retention ratio is 50 percent

the return on equity ( ROE ) is 17 percent ( that is, it can earn 17 percent on reinvested earnings), and

similar shares of stock sell at multiples of 9.091times earnings per share.

a.Determine the expected growth rate for dividends.

b.Determine the price-earnings ratio ( P/E1 )

c.What is the stock price using the P/E ratio valuation method?

d.What is the stock price using the dividend discount model?

e.What would happen to the P/E ratio (P/E1) and stock price if the firm could earn 22 percent on reinvested earnings (ROE)?

f.What does this tell you about the relationship between the rate the firm can earn on reinvested earnings and P/E ratios?

a.What is the expected growth rate for dividends ?% (Round to two decimal places.)

b.What is the price earnings ratio (P/E1) ?% ( Round to three decimal places )

c.What is the stock price using the P/E ratio valuation method. ?$ (Round to the nearest cent.)

d.What is the stock price using the dividend discount model. ?$ (Round to the nearest cent.)

e.Using the dividend discount model, what would be the stock price if the firm could earn 22% on reinvested earnings ( ROE?) ?$ (Round to the nearest cent )

What would be the P/E ratio (P/E1) if the firm could earn 22% on reinvested earnings (ROE) ? Round to three decimal places

f.What does this tell you about the relationship between the rate the firm can earn on reinvested earnings and P/E ratios? (Select from the drop-down menus.)The higher the ROE, other things being the same, the(lower or higher) the value of the common stock and thus the (lower or higher) the price-earnings ratio,P/E.