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Please show your work on paper. Thank You! 1. Suppose a firm is expected to earn $5 per share next year. The firm has a

image text in transcribed Please show your work on paper. Thank You!

1. Suppose a firm is expected to earn $5 per share next year. The firm has a beta of 1.2, the expected return on the market is 8%, and the risk free rate is 2%. (a) What is the value of the firm if it pays out all of its earnings as dividends? (b) Suppose the firm decides to reinvest 40% of its earnings into future investment projects. The firm's return on equity (ROE) is 15%. What is the value of the firm, and what is the present value of growth opportunities (PVGO)

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