Problem 6. Here we test your valuation skills of stocks with dividend (20 points) 30 minutes (cumulative 180 minutes) Me Inc. expects to report its 2019 net earnings to be 200 million. It has 50 million shares of common stock outstanding. The investors require a rate of return on equity of 10% per year (i.e. cost of equity). Consider yourself one of the investors who invested funds in Me Inc. The following is what you receive by e-mail on 1 January 2019: - firm - 2019 dividend per share - ROIC = all equity financed. = paid out at Dec. 31 2019. = 20% a) 5 points. Scenario 1: Me Inc. announced that all future earnings will be paid out as dividends at the end of each year. Determine the price of one share of Me Inc. stock on January 1 2019 (to) according to the dividend discount model. (Hint: first calculate the earnings per share based on the entire net earnings and number of outstanding shares). b) 10 points. Scenario 2: Calculate again the share price at 1 January 2019 according to the dividend discount model taking into account the following information: Me Inc. re-invests 40% of net earnings yearly at a ROIC of 20%. Management has decided to pay out the remaining 60% of net earnings as dividend. 5 points. Compute the net present value of growth opportunities implied in the previous answer. Explain what it means. Problem 6. Here we test your valuation skills of stocks with dividend (20 points) 30 minutes (cumulative 180 minutes) Me Inc. expects to report its 2019 net earnings to be 200 million. It has 50 million shares of common stock outstanding. The investors require a rate of return on equity of 10% per year (i.e. cost of equity). Consider yourself one of the investors who invested funds in Me Inc. The following is what you receive by e-mail on 1 January 2019: - firm - 2019 dividend per share - ROIC = all equity financed. = paid out at Dec. 31 2019. = 20% a) 5 points. Scenario 1: Me Inc. announced that all future earnings will be paid out as dividends at the end of each year. Determine the price of one share of Me Inc. stock on January 1 2019 (to) according to the dividend discount model. (Hint: first calculate the earnings per share based on the entire net earnings and number of outstanding shares). b) 10 points. Scenario 2: Calculate again the share price at 1 January 2019 according to the dividend discount model taking into account the following information: Me Inc. re-invests 40% of net earnings yearly at a ROIC of 20%. Management has decided to pay out the remaining 60% of net earnings as dividend. 5 points. Compute the net present value of growth opportunities implied in the previous answer. Explain what it means