She believes that this company can maintain its current, Financial Management

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She believes that this company can maintain its current

Alpha Company, which currently pays out 10% of its earnings in dividends, have latest earnings that were $5 a share. It earns ROE on new investments of 15%. Suppose Janina requires a 14% return.

1. How much would she pay for a share of the stock of Alpha Company based if she believes that this company can maintain its current retention ratio and ROE on new investments in the long run?

2. What would Janina pay for Alpha Company’s stock if its payout ratio was 60% and its ROE was 19%?

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