You're considering buying shares of Kirk's Information Inc. The company is still in a growth phase, so it won't pay dividends for the next few years. (10 marks) 9.4 Kirk's accountant has determined that their first year's earnings per share (EPS) is expected to be $20. The company expects a return on equity (ROE) of 25% in each of the next five years but in year 6 they expect a ROE of 20%. In year 7 and beyond (indefinitely) it expects to earn a ROE of 15%. Assume that the required return on this investment is 15%. Also, at the end year 6 and every year thereafter, the company expects to pay dividends at a rate of 70% of earnings, retaining the other 30% in the company. Complete the following table (all values per share): (5 marks) a. Owners' equity, ending Owners' equity, beginning Expected dividend ROE Year EPS (end of year) 25% 100 80 20 100 x 0.25 2 100 25% 125 = 25 125 25% 3 4 25% 5 25% 20% 15% 15% b. What would the dividend per share be at the end of year 8 (Ds, from your table above)? (1 mark) Calculate the value of all future dividends for each share at the C. beginning of year 8. (Hint: P7 depends on De.) (2 marks) d. What is the present value of P, for a single share at the beginning of (1 mark) year 1 (i.e., now, at time 0)? Recall that the value of a share is equal to the present value of all future dividends. What is the value of a single share in the company now, at time 0? e. (1 mark) You're considering buying shares of Kirk's Information Inc. The company is still in a growth phase, so it won't pay dividends for the next few years. (10 marks) 9.4 Kirk's accountant has determined that their first year's earnings per share (EPS) is expected to be $20. The company expects a return on equity (ROE) of 25% in each of the next five years but in year 6 they expect a ROE of 20%. In year 7 and beyond (indefinitely) it expects to earn a ROE of 15%. Assume that the required return on this investment is 15%. Also, at the end year 6 and every year thereafter, the company expects to pay dividends at a rate of 70% of earnings, retaining the other 30% in the company. Complete the following table (all values per share): (5 marks) a. Owners' equity, ending Owners' equity, beginning Expected dividend ROE Year EPS (end of year) 25% 100 80 20 100 x 0.25 2 100 25% 125 = 25 125 25% 3 4 25% 5 25% 20% 15% 15% b. What would the dividend per share be at the end of year 8 (Ds, from your table above)? (1 mark) Calculate the value of all future dividends for each share at the C. beginning of year 8. (Hint: P7 depends on De.) (2 marks) d. What is the present value of P, for a single share at the beginning of (1 mark) year 1 (i.e., now, at time 0)? Recall that the value of a share is equal to the present value of all future dividends. What is the value of a single share in the company now, at time 0? e. (1 mark)