Benchmark Metrics, Inc. (BMI), an all-equity financed firm, reported EPS of \($4.52\) in 2016.

Despite the economic downturn, BMI is confident regarding its current investment opportunities.

But due to the financial crisis, BMI does not wish to fund these investments externally.

The Board has therefore decided to suspend its stock repurchase plan and cut its dividend to

\($1.49\) per share (vs. almost \($2\) per share in 2015) and retain these funds instead. The firm has just paid the 2016 dividend, and BMI plans to keep its dividend at \($1.49\) per share in 2017 as well. In subsequent years, it expects its growth opportunities to slow, and it will still be able to fund its growth internally with a target 36% dividend payout ratio, and reinitiating its stock repurchase plan for a total payout rate of 59%. (All dividends and repurchases occur at the end of each year.)

Suppose BMI’s existing operations will continue to generate the current level of earnings per share in the future. Assume further that the return on new investment is 15%, and that reinvestments will account for all future earnings growth (if any).

Finally, assume BMI’s equity cost of capital is 10%.

a. Estimate BMI’s EPS in 2017 and 2018 (before any share repurchases).

b. What is the value of a share of BMI at the start of 2017?