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Please calculate the per share value today of Rummel Company common stock based on the...

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Finance

Please calculate the per share value today of Rummel Company common stock based on the following information.

The company will have earnings per share of $100 one year from now. Further, the company will retain or reinvest 80% of its earnings back into the company for internal projects and be able to earn a 12.5% return on those reinvested project funds during years 2 and 3. To be clear, during year 2 means the time between year 1 and year 2 on a time line; and during year 3 means the time between year 2 and year 3 on a time line.

Beginning with the resultant earnings outcome at year 3, the Rummel Company will change its reinvestment decision such that it will reinvest only 40% of its earnings back into the company and it will only be able to earn a 7.5% return on those reinvested funds. This 40% retention rate and 7.5% reinvestment return will continue forever. For your work assume the equity cost of capital for the Rummel Company is 7%.

As always, be sure to show clearly all your work and be precise with your calculations out to 5 decimal places. Again, please calculate the per share value today of Rummel Company common stock.

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