Question
You expect that Bean Enterprises will have earnings per share of $3 for the coming year. Bean plans to retain all of its earnings for
You expect that Bean Enterprises will have earnings per share of $3 for the coming year. Bean plans to retain all of its earnings for the next three years. For the subsequent two years, the firm plans on retaining 50% of its earnings. It will then retain only 25% of its earnings from that point forward. Retained earnings will be invested in projects with an expected return of 20% per year. If Bean's equity cost of capital is 12%, then the price of a share of Bean's stock is closest to:
A) $17.00
B) $10.75
C) $27.75
D) $43.50
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Fundamentals of Investment Management
Authors: Geoffrey Hirt, Stanley Block
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0078034620, 978-0078034626
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