You have been asked to assess the value per share of Secure Savings, a mature savings and loan company. The company had earnings per share in the just-com- pleted financial year of $4 per share and paid dividends of $2.40 per share. The book value of equity at the beginning of the year was $40 per share. The beta for the stock is 0.90, the risk-free rate is 6%, and the market risk premium is 4%.
a. Assuming that the firm will continue to earn its current return on equity in perpetuity and maintain its current dividend payout ratio, estimate the value per share.
b. If the stock is trading at $40 a share, estimate the implied growth rate.