Art has come out with a new and improved product as a


ART has come out with a new and improved product. As a result, the firm projects an ROE of 25%, and it will maintain a plowback ratio of 0.25. Its earnings this year will be $2 per share. Investors expect a 12% rate of return on the stock. a) At what price would you expect ART to sell? b) At what P/E ratio would you expect ART to sell? c) What is the present value of growth opportunities for ART? d) What price do you expect ART shares to sell for in 4 years?

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Financial Management: Art has come out with a new and improved product as a
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