Problem 3:

Tommy Inc outstanding common stock is currently selling in the market for 33 $. Dividends of 2,3 $ per share were paid last year, return on equity is 20% and its retention rate is 25 %. Picture the problem, decide on a solution strategy, solve and analyze.

a) What is the value of the stock to you given a required rated of return of 15 % ? (15 points)

b) Should you purchase this stock? (5 points)