Problem:
Laurel Enterprises expects earnings next year of $4 per share and has a 40% retention rate, which it plans to keep constant. It's equity cost of capital is 10%, which is also its expected return on new investment. Its earnings are expected to grow forever at a rate of 4% per year.
Required:
Question: If its next dividend is due in one year, what do you estimate the firm's current stock price to be?
Note: Show all workings.