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The annual earnings of BouncingBall Tennis will be $5 a share in perpetuity if the firm makes no new investments.Three years from now, and in
The annual earnings of BouncingBall Tennis will be $5 a share in perpetuity if the firm makes no new investments.Three years from now, and in every subsequent year in perpetuity, the company can invest 25% percent of its earnings in new projects and that for each dollar invested, earnings grow by $0.40 in the subsequent year and then remain at this new level in perpetuity. Assume the firm's discount rate is 14%. If BouncingBall makes this investment every year (starting in year three), what should be the price per share of its stock?
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