SHOW ALL WORK COMPLETELY. Microsoft (MSFT) expects to have earnings per share (EPS) of $3.20 in 2018. MSFT plans to pay $1.98 in dividends. MSFT will retain any earnings it does not payout.

a. How much of its earnings will MSFT retain? What is MSFTs retention rate? What is MSFTs dividend payout rate?

Assume MSFT takes all of its retained earnings (as calculated in part a. above) and invests them in new projects that have an expected return of 8%.

b. What will MSFTs earnings growth rate be?

c. If MSFT has a 4.3% equity cost of capital, what price would you pay to purchase MSFT stock? Now assume instead that MSFT has a growth rate of 0. MSFT has 7.702 billion outstanding shares. They expect to have $24.65 billion in earnings in 2018. From this amount, MSFT plans to use half of their earnings, $12.32 billion to payout dividends and to use for share repurchases. MSFT expects to spend the same amount on dividends and share repurchases every year forever. Assume MSFT still has an 4.3% equity cost of capital.

d. Using the above information, what is MSFTs stock price today?