Digital Timber International (DTI) is a developer of distributed data storage technologies. The profitability of DTI and its investment policy are summarized in the following table:

Assume that without new investments, expected earnings of DTI would remain at their time-1 level in perpetuity. All investments are expected to generate a constant level of incremental earnings per year in perpetuity for each $1 of investment. For the time-1 investment, the cash flow is $0.2 per $1 invested, and for the time-2 investment, it is $0.15. For an investment made at time t, incremental cash flows are generated starting in year t + 1. The plow-back ratio will remain equal to 0 after year 3. The appropriate discount rate for all future cash flows of DTI is 11.6%.

(a) Compute the expected book value per share at time 1.

(b) Compute the expected earnings per share of DTI at time 2.

(c) Compute the expected value of the ex-dividend stock price at time 2.

(d) Compute the expected value of the ex-dividend stock price at time 0.

(e) Compute the expected return (over a single-period) on the stock of DTI at time 0 (in %).

0 1 2. 3 Expected earnings per share $26.1 Plow-Back Ratio 0.87 0.6 0 Book Value per Share $100 0 1 2. 3 Expected earnings per share $26.1 Plow-Back Ratio 0.87 0.6 0 Book Value per Share $100