You want to value the stock of Enruobso Yzzo (EY) Corporation. EY just generated annual earnings per share of $8.00. Without any new investment, the company would be able to generate these earnings at the end of every year forever. However, EY has decided to reinvest all of its current earnings into development projects. This investment is expected to generate a return of 125% this year and 25% every year after that.

Starting at the end of this year, EY will distribute 60% of its annual earnings in dividends to its shareholders, and that the EY has a cost of capital of 18%.

A.) What are EYs expected earnings per share (E1), reinvestments (I1) and dividends (D1) at the end of this year?

B.) What is EYs expected earnings per share (E2), reinvestments (I2) and dividends (D2) at the end of the second year?

C.) What is the value of EYs stock today and what fraction of the price comes from assets in place and what fraction comes from new investment?