The stock of Nogro Corporation is currently selling for $$20$ per share. Earnings per share in the coming year are expected to be $$5.$

The company has a policy of paying out $40\%$ of its earnings each year in dividends. The rest is retained and invested in projects that

earn a $25\%$ rate of return per year. This situation is expected to continue indefinitely.

Required:

a$.$ Assuming the current market price of the stock reflects its intrinsic value as computed using the constant$-$growth DDM$,$ what rate of

return do Nogro's investors require? $($Do not round intermediate calculations.$)$

b$.$ By how much does its value exceed what it would be if all earnings were paid as dividends and nothing was reinvested?

PVGO

c$.$ If Nogro were to cut its dividend payout ratio to $25\%,$ what would happen to its stock price?

Stock price would be unaffected

Stock price would be increased

Stock price would be decreased