You have been asked to prepare a valuation of McQueen Plc based on its expected earnings and dividends over the next several years. The company is expected to declare earnings of 40million for the next financial year. Analysts believe that the company will reinvest 60 percent of its earnings next year, 40 percent the following year, and 30 percent from year three onwards. The internal rate of return on new investment projects is expected to be 40 percent for investments made at the end of year one, falling to 30 percent in year two, and thereafter will remain steady at 15 percent for investments made from year three onwards. The company can be valued using the capital asset pricing model (CAPM). The riskfree rate is currently 2%, the expected market risk premium is 6%, and the firm has an equity beta of 1.5. Required:

a. Calculate the required return on the firms shares using the CAPM

b. Prepare a schedule of dividends, reinvested earnings, incremental earnings, and the net present value of new investment projects for McQueen Plc in years one to three.

c. Value the company using the dividend discount model.

d. Value the company using the earnings-based valuation method.