Company A currently plows back 30% of its earnings and earns a return of 25% on this investment. The forward looking dividend yield on the stock is 5%.

(i) Company A continues to plow back 30% of earnings and earns a return of 25% on the investment, at what rate will earnings and dividends grow and what is the expected return on Company As stock?

(ii) Suppose that management suddenly announces that there are no future investment opportunities. Company A now intends to pay out all its earnings. Calculate the percentage change in the stock price. [8 marks]