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y Tell me what you wa Find View Form Protect FIN352-03.pdf* Share Help Extras FIN352-04.pdf 3. Grott and Perrin, Inc. has expected earnings of $3 per share for next year. The firm's ROE is 20% and its earnings retention ratio is 70%. If the firm's market capitalization rate is 15%, what percentage of its share price is attributed to the present value of its growth opportunities (PVGO)? 4. Flanders, Inc. has expected earnings of $4 per share for next year. The firm's ROE is 8% and its earnings retention ratio is 40%. If the firm's market capitalization rate is 15%, what is the present value of its growth opportunities? And how do you interpret it? 1 17 (17/17) - here to search Variable Growth Model: Example 1. Determine the actual dollar dividends for the next 3 years: $1.00(1.4) = $1.40; $1.00(1.4) 2= $1.96; $1.00(1.4)3=$2.74 2. Discount the first three dividends to present value: D /(1+k) + D /(1+k)2 + D2/(1+k) 3 =$1.40/(1.12) + $1.96/(1.12)2 +$2.74/(1.12) 3 = $1.25 + $1.56 +$1.95=$4.76 3. Evaluate years 4 through infinity at the end of year 3: P = D./(k-g,) =D,(1.08)/(0.12-0.08)$2.96/0.04=$74 4. Discount price at the end of year 3 back to today: Pz/(1+k)3 = $74/(1.12)3 = $52.67 5. Add the two present values together: $4.76 (present value of the first 3 years of dividends) +$52.67 (present value of the price at the end of Year 3) =$57.43 (P, i.e.,the value today of this multiple growth rate stock)

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