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Company Baba;s current return of equity is 10% and equity beta is1.5. it pays out fourth of earnings as cash dividends. Current bookk value per
Company Baba;s current return of equity is 10% and equity beta is1.5. it pays out fourth of earnings as cash dividends. Current bookk value per share is $100. Book value per share will grow as Baba reinvest earnings. Assume that the ROE and payout ratio stay contant for the next three years. After that, competition forces ROE down to 7.5% and the payout ratio increases to 0.6. suppose the company is 100% financed by equity, and the market return is 12%, and the risk free rate is 3%. Calculate the value of Babass stock per share.
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