LAB Inc reported a net income of $ 150 million on a beginning book value of equity

of $ 1.2 billion in 2017. The firm paid out $ 60 million in dividends, and bought back $ 15

million of stock during the year.

a. Assuming that the firms return on equity and reinvestment rate remain the same in 2017,

estimate the expected growth rate in 2018.

b. The average return on equity for the industry is 15%. If LAB Incs return on equity changes

to match the industry average in 2018, estimate the expected growth rate in earnings in

2018.