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##### Meta Company?s stock will generate earnings of $6...

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Solution

**Question**

Meta Company?s stock will generate earnings of $6 per share this year. The discount rate for the stock is 15%, and the rate of return on reinvested earnings also 15%. (a) Find both the growth rate of dividends and the price of the stock if the company reinvest the following fraction of its earnings in the firm (i) 0%; (ii) 40%; (iii) 60%. (b) Redo part (a) now assuming that the rate of return on reinvested earnings is 20%, What is the present value of growth opportunity (PVGO) for each reinvested rate? (c) Considering your answers to parts (a) and (b), can you briefly state the difference between companies experiencing non-growth versus companies with growth opportunities? Hint: the rate of return on reinvested earnings also 15% (i.e., ROE is 15%. Because retained earning is equity ? the rate of return on reinvested/retained earning is 15% ? It suggests that ROE (Return on equity) is 15%. ),i am on a really tight timeframe (its due tomorrow). So, i would appreciate it, if this didn't take as long as till the 3rd

Paper#4268 | Written in 18-Jul-2015

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