Problem:
Consider the same firm in Question 1: Its earnings per share were $3.00 during the current year (period 0). The firm reinvests 50% of earnings as capital investments, to maintain annual earnings growth of 4% forever. The appropriate discount rate is 15% per year.
Required:
Question: What is the expected stock price one year from today, i.e., P1?
A. $28.36
B. $29.50
C. $14.18
D. $14.75
Note: Be sure to show how you arrived at your answer.