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Two-stage DCF model Compost Science Incorporated (CSI) is in the business of converting Bostons sewage sludge into fertilizer. The business is not in itself very

Two-stage DCF model

Compost Science Incorporated (CSI) is in the business of converting Bostons sewage sludge into fertilizer. The business is not in itself very profitable. However, to induce CSI to remain in business, the Metropolitan District Commission (MDC) has agreed to pay whatever amount is necessary to yield CSI a 14% book return on equity. At the end of the year, CSI is expected to pay a $5 dividend. It has been reinvesting 40% of earnings and growing at 5% a year.

a-1. Suppose CSI continues on this growth trend. What is the expected long-run rate of return from purchasing the stock at $100?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to the nearest whole number.

a-2. What part of the $100 price is attributable to the present value of growth opportunities?

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

b. Now the MDC announces a plan for CSI to treat Cambridge sewage. CSIs plant will, therefore, be expanded gradually over five years. This means that CSI will have to reinvest 80% of its earnings for five years. Starting in year 6, however, it will again be able to pay out 60% of earnings. What will be CSIs stock price once this announcement is made and its consequences for CSI are known?

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

I got a correct: Rate of return = 10% , PVGO = 16.67

But I cannot get the correct answer for B: What is the stock price? I can use some help please

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