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A private equity (PE) firm is attempting to value the stock of "StartMeUp" using the...

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Finance

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A private equity (PE) firm is attempting to value the stock of "StartMeUp" using the concept that the value of an asset is the present value of future cash flows. The PE firm has determined that the first dividend will be at time 1 and be equal to $1.00. Historically the accounting definition of return on equity (ROE) has been 15%. Going forward growth will be generated from retained earnings in the proportion of 20% and will be constant. The firm doesn't have any debt so that it is unlevered. Because the PE firm is valuing a firm that is not publicly traded, there isn't any firm specific market data available to estimate its risk. The return on the market portfolio is RM=14% and the risk-free rate is rf=2%. Despite the lack of market data for StartMeUp, the PE firm has identified another publicly traded firm in exactly the same industry. That firm has a beta of 1.5 , a debt-to-equity ratio of 0.8 , and a tax rate of 25%. Find the price of one share of StartMeUp

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