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Problem 8-06

A company earned $7 per share in the year that just ended. The company has no more growth opportunities. The company has a 12 percent return on equity and a 12 percent cost of equity. Do not round intermediate calculations. Round your answers to the nearest cent.

1. What is the stock worth today?

   $

2. What if the company was expected to earn $7.70 next year and then never grow again? Assuming that their return on equity and cost of equity didn't change, what would the stock be worth today?

   $