Question $6$ and $7$

In March of $2018,$ Domestic Paper stock sold for $$73$ per share. Security analysts were forecasting

a long$-$term earnings growth rate of $8\mathrm{.}5\%.$ The company's most recent annual dividend was $$0\mathrm{.}68$

per share.

If dividends are expected to grow along with earnings at $g=8\mathrm{.}5\%$ per year in perpetuity, what

rate of return $(r_E)$ were investors expecting? $[$Question $6]$

Analysts just revised their previous estimates and now expect Domestic Paper will earn $12\%$ on

book their equity $($ROE$),$ which they believe is a good proxy for the return on their retained

earnings. They expect Domestic Paper will retain $50\%$ of its earnings going forward. Based on

these new forecasts, what rate of return $(r_E)$ were investors expecting? $[$Question $7]$