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Please help with this question with working out Question 18 Rising plc has been re-investing 70% of earnings into a project that yields a return
Please help with this question with working out
Question 18 Rising plc has been re-investing 70% of earnings into a project that yields a return of 14%. The dividend yield is expected to be 4% over the next year. The company has a current price of 100 per share. Required: (a) Assume that the company can continue to plowback at this rate and earn 14% on the investment. How rapidly will the earnings and dividends grow? What is the market required rate of return? (3 marks) (b) What is the present value of the growth opportunities of Rising Plc? (6 marks) (c) Rising plc announces that it will re-invest 90% of its earnings for the next 4 years. Starting in Year 5, the company will again be able to pay out 30% of its earnings. What will be Rising's share price once this announcement is made? (6 marks) Step by Step Solution
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