Question
Robust Growth, Inc. currently has assets with book value of 1000 and is financed entirely with equity. The company is expected to have a return
Robust Growth, Inc. currently has assets with book value of 1000 and is financed entirely with equity. The company is expected to have a return on equity (ROE) of 20% inperpetuity. The required rate of return by shareholders of Robust Growth, Inc. is equal to 10%.(a) Beginning next year, Robust Growth, Inc. is expected to reinvest a quarter (i.e.,1/4) of its net income and continue with that reinvestment policy in perpetuity. The company is expected to pay out the rest of its net income in dividends. What is todays intrinsic value of equity equal to?
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