The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $18.50, all of which was reinvested in the company. The firms expected ROE for the next five years is 14% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the firms ROE on new investments is expected to fall to 9%, and the company is expected to start paying out 40% of its earnings in cash dividends, which it will continue to do forever after. DEQSs market capitalization rate is 25% per year.

a. What is your estimate of DEQSs intrinsic value per share?

b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year?

- Price will (increase/decrease) by ____% per year until year 6

c. Because there is no dividend, the entire return must be in capital gains, thereby the price in one year is_____.

d. What is your estimate of DEQSs intrinsic value per share if you expected DEQS to pay out only 20% of earnings starting in year 6?