You are hinancial analyst for a hedge fund and need to determine the value of the stock of NewEquity Inc. NewEquity Inc is a new and growing corporation The following table describes the characteristics of NewEquity Inc.) Covariance of stock with the Stock Current stock price market NewEquity Inc 0.005 560 As NewEquity Inc. is a new company thus, they are not expected to pay any dividends until the end of you. The following are predictions for NewEquity Incs camins per share (EPS) in Your State EPS Probability Great $7.00 25% Good $6.50 25% Average $5.00 30% Bad $0.00 20% The payout ratio for NewEquity Inc. is 60% pa and the return on equity (ROE) is 10% pa. This is expected to be constant forever. The expected stock market risk premium is 6% pa the risk tree rate is 3% pa, and the market standard deviation is 20% pa. Assume that all rates given are compounded annually. (a) Using the CAPM, what is the required rate of return of NrwEquity Incis stock? [3 marks! id Instead of the current payout policy, suppose NewEquity Inc. decides to pay out all their earnings as dividends forever. What would the intrinsic value of NewEquity Ine's stock be now? [3 marks] (d) instead of the current payout policy, suppose NewEquity Inc decides to change its payout ratio to 30% forever. What would the intrinsic value of NewEquity Ine's stock be now? (4 marks] fe) Have the intrinsic values for parts (c) and (d) changed or not? Explain why or why not. If you were a shareholder of NewEquity Inc. which payout policy would you prefer? Explain your choice. 15 marks] in Assume that the calculations in part (d) is the forecasted price for NewEquity Inc, in one year's time. What would be your rate of return if you purchased the stock today at the current price and sold it in one year's time? [2 marks] () Suppose you discover leaked Information that NewEquity Inc. will be changing their payout ratio to 20% forever. If the market is: 6) weak form efficient, semi strong efficient or to strong form efficient could you gain abnormal returns from this information? Why or why not? Explain your answer under each form of market efficiency, [3 marks