Company Q’s current return on equity (ROE) is 12%. It pays out 40 percent of earnings as cash dividends (payout ratio = XXXXXXXXXXCurrent book value per share is $64. Book value per share will grow as...

Company Q’s current return on equity (ROE) is 12%. It pays out 40 percent of earnings as cash dividends (payout ratio = 0.40). Current book value per share is $64. Book value per share will grow as Q reinvests earnings.


Assume that the ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 10.5% and the payout ratio increases to 0.90. The cost of capital is 10.5%.



a.What are Q’s EPS and dividends in years 1, 2, 3, 4, and 5?(Do not round intermediate calculations. Round your answers to 2 decimal places.)

b.What is Q’s stock worth per share?(Do not round intermediate calculations. Round your answer to 2 decimal places.)