Question 2. Stock valuation (10 marks) Lory Company had net earnings of $127,000 past year, of which $46,200 was paid out in dividends. The company's equity was $1,587,500. Lory has 200,000 shares outstanding with a current market price of $11.63 per share. Both the number of shares and the dividend payout ratio are constant. Requirements: a) What is the required rate of return on equity if the earnings growth rate is 5.6 percent and is expected to remain constant at the current level?

b) Following question a) above, what is the expected stock price in 15 years?

Question 2. Stock valuation (10 marks) Lory Company had net earnings of $127,000 past year, of which $46,200 was paid out in dividends. The company's equity was $1,587,500. Lory has 200,000 shares outstanding with a current market price of $11.63 per share. Both the number of shares and the dividend payout ratio are constant. Requirements: a) What is the required rate of return on equity if the earnings growth rate is 5.6 percent and is expected to remain constant at the current level? ( 6 marks) b) Following question a) above, what is the expected stock price in 15 years? (4 marks)