Halliford corporation expects to have earning this coming, Ask an Expert

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Halliford Corporation expects to have earning this coming year of $2.734 per share. Halliford plans to retain all of its earnings for the next two years. Then, for the subsequent two years, the firm will retain 47% of its earnings. It will retain 19% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 19.9% per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 8.7%, what price would you estimate for Halliford stock?

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