JPL Technologies was established in $1924$ in the early years of the avionics industry. With a long history of consistent growth and dividends payments, the company is contemplating a move into the Artificial Intelligence $($AI$)$ applications for the commercial and airline industry.

The move would require the company to reduce dividends and increase reinvestment in the company. The change would also likely increase risk but also return on equity capital for investors. The board of directors has retained an Investment Bank to help determine to efficacy of the strategy change.

The Investment Bank has recommended that the change in strategy be adopted. Their primary rational is that the new approach will increase earnings. The CFO of the company has asked the Corporate Finance team to review the data obtained by the Bank and verify the recommendation. The Bank sent the following data below, use this data to determine if the recommendation of the Bank is correct.Particulars Current Company Position Forecasted Company Position

US Treasury Risk Free Rate $1\mathrm{.}5\%1\mathrm{.}5\%$

Est. Market Return $11\mathrm{.}0\%11\mathrm{.}0\%$

Beta Ratio $\mathrm{.}851\mathrm{.}50$

Dividend Payout Ratio $\mathrm{.}60\mathrm{.}20$

Forecasted Earnings per Share $$2\mathrm{.}70$ $$2\mathrm{.}93$

Growth Rates $3\mathrm{.}83\%12\mathrm{.}6\%$

SPECIFIC OUTPUT REQUIREMENTS:

PAGE $1-$ CAPM:

Using the data from the table above, construct a table with the variables used in the CAPM model to compute the Required Cost of Equity for JPL under both scenarios.

$1.$ The cost of equity using the CAPM Model for JPL$$s current position

$2.$ The cost of equity using the CAPM Model for JPL$$s forecasted position

PAGE $2-$ DDM:

Using the cost of equity results from the CAPM analysis above, and the data from the table above, compute the following:

$1.$ Estimated forecasted dividends under both strategies

$2.$ The forecasted stock price for JPL under the two strategies

Based on your analysis, at the bottom of the second page, state clearly and concisely the results of your analysis. Do you agree with the recommendation of the Investment Bank? Why or why not?