Pepperdine Inc. expects to realize earnings per share of $10 next year out of wish it plans on paying $4 in dividend and to retain $6 for future investments. It also expects a return on equity of 15 percent. The firm plans on keeping the same dividend payout ratio in the future and the same return on equity.

1. Estimate the future growth rate of the firm.

2. Estimate the price of Angelinas common stock, if the investors required rate of return for the firms stock is 16%.

3. Consider now that the firm will raise its next dividend to $6 and then continue with the same dividend payout permanently. The required rate of return will remain at 16%.

Re-estimate the value of the stock.

4. Recommend if the firm should the firm make the change?