Part II - Stock valuation The Phoenix (P) Corp. is operating in an essential business that its local council is sponsoring. To induce P Corp to remain in this essential business, the council has agreed to pay whatever amount is necessary to yield P Corp a 12% book return on equity. P Corp is expected to pay a $4 dividend next year (i.e., in year 1). It has been reinvesting 37% of earnings. (Round answers to two decimal places) 1. Suppose P Corp continues on this growth trend: 1a. What is the expected long-run rate of return (in \%) from purchasing the stock at \$100? [1 marks] Long-run rate of return (in \%) = 1b. What is earning per share (in $ ) in year 1 ? [1 marks] Earning per share (in S) = 1c. What part of the $100 price is attributable to the present value of growth opportunities (PVGO) (in S)? [2 marks] PVGO ( in S) = 2. Now the council announces a plan for P Corp. P Corp will, therefore, be expanded gradually over two years. This means that P Corp will have to reinvest 70% of its earnings for two years. Starting in year 3 , however, it will again reinvest 37% of earnings. However, P Corp wants to maintain the earning per share in year 1 as previously planned. 2a. What is annual growth rate of P Corp over the next two years? [1 marks] Annual growth rate (in \%) over the next two years = 2b. What is dividend per share (in S) in year 3 ? [2 marks] Dividend per share (in \$) in year 3= 2c. What will be P Corp's stock price once this announcement is made and its consequences for P Corp are known? [3 marks] P Corp's stock price (in S) =