Stock Valuation Using the Dividend Discount Model The ABC Corporation currently pays no cash dividends and is not expected to for the next 5 years. Its latest EPS was $10, all of which was reinvested in the company. The company's expected ROE for the next 5 years is 20% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the company's ROE on new investments is expected to fall to 15%, and the company is expected to start paying out 40% of its earnings in cash dividends, which it will continue to do forever after. ABC's market capitalization rate is 15% per year. (a) What is your estimate of ABC's intrinsic value per share? (b) What effect would it have on your estimate of ABC's intrinsic value if you expected ABC to pay out only 20% of earnings starting in year 6? Explain