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Firm ABC projects an ROE of 10%, and it will maintain a plowback ratio of 50%. Its earnings at the end of this year (EP

Firm ABC projects an ROE of 10%, and it will maintain a plowback ratio of 50%. Its earnings at the end of this year (EP S1) will be $2 per share. Investors expect an 8% rate of return on the stock.

c. What would be the price and the present value of growth opportunities if the firm planned to reinvest only 40% of its earnings?

d. Firm ABC is all-equity-financed and has no debt. Suppose the tax rate is 40%. What is the operating return on assets (ROA)?

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