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Question: Assume that discount rate (capitalization rate) is 14.5% and a company pays all of its earnings as dividends which amounts to $15 per share.

(a) Find the current stock price.

(b) What will happen to the stock price if the company managers think that there are good investment opportunities and retain 30% of the earnings (plowback ratio) when the return on equity of the stock is ROE=0.15?

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Category:- Basic Finance
Reference No.:- M92763952

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