Chapter 13, Problem 21PS

The FE Corporation’s dividends per share are expected to grow indefinitely by $\text{5}\%$ per year. $\left(\text{LO 13}-\text{3}\right)$
a. If this year’s year-end dividend is $\$\text{8}$ and the market capitalization rate is $\text{1}0\%$ per year, what must the current stock price be according to the dividend discount model?
b. If the expected earnings per share are $\$\text{12}$ , what is the implied value of [he ROE on future investment opportunities?
c. How much is the market paying per sham: for growth opportunities (that is, for an ROE on future investments that exceeds the market capitalization rate)?