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Company Q's current return on equity (ROE) is 14%. It pays out 60 percent of earnings as cash dividends (payout ratio = 0.60). Current book
Company Q's current return on equity (ROE) is 14%. It pays out 60 percent of earnings as cash dividends (payout ratio = 0.60). Current book value per share is $70. Book value per share will grow as Q reinvests earnings. Assume that the ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 12.5% and the payout ratio increases to 0.90. The cost of capital is 12.5%. a. What are Qs EPS and dividends in years 1, 2, 3, 4, and 5? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Year EPS Dividends 1 $ 6.28 2 $ 11.18 $ 6.71 11. 4 $ 12.75 $ 7.66 5 $ 12.91 $ 11.62 b. What is Q's stock worth per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock worth per share $ 85.18
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