Company T's current return on equity (ROE) is 18%. It pays out one-fifth of earnings as cash dividends (payout ratio = .20). Current book value per share is $35. The company has 8 million shares outstanding.

Assume that ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 11% and the company increases the payout ratio to 50%. The company does not plan to issue or retire shares. The cost of capital is 8.5%.

a. What is stock T worth?

b. How much of stock T's value is attributable to growth opportunities (PVGO)?