Pennsylvania Paper Inc., a producer of paper products, reported the following financial numbers for the fiscal year 2021:

• Net income: $60 million
• Earnings per share: $3.5
• Dividends per share: $1.25
• Market value debt-to-equity ratio: 10%
• Book value of equity: $260 million
• Equity beta: 0.9 (unlevered beta is expected to stay constant)
• Corporate tax rate: 25%.

The firm expects to maintain these financial fundamentals from 2022 to 2026, after which it is expected to become a mature firm whose financial characteristics will approach the industry averages as given below:

• Earnings growth: 5%
• Debt/equity ratio: 30%
• Interest rate on debt: 5%
• Return on capital: 10%

The Treasury bond rate is 2% and the expected market risk premium is 4.5%.

Part 1

What is the expected growth rate in earnings for the period from 2022 to 2026?

Part 2

What is the expected payout ratio after 2026?

Part 3

What is the expected beta after 2026?

Part 4

What is the expected stock price at the end of 2026 (in $)?

Part 5

What is the current value of the stock (in $)?

Part 6

How much of this value is due to extraordinary (as opposed to stable) growth (in $)?

Part 7

How much of this value is due to stable (as opposed to no) growth (in $)?