Problem:
Royal Corp. just paid an annual dividend of 3 dollars per share, this is based on a 40 percent divident payout ratio (3 dollars was 40 percent of total earnings per share). They expect that earnings will grow at a 3% rate, forever, and they don't expect that the dividend payout ratio will change. There are 200 million shares of common stock outstanding. There is a required rate of 16% on stock.
They are considering a new invesment that has an NPV of 50 mil.
Required:
Question: What will be the new stock price and P/E ratio?
Note: Please provide full description.