Question: A firm with return on equity 20% and beta 0.9 just distributed all its earnings ($12 per share) as dividends. The expected market return is

A firm with return on equity 20% and beta 0.9 just distributed all its earnings ($12 per share) as dividends. The expected market return is 15% and the risk-free rate is 5%. The firm can keep distributing all its earnings to shareholders each year or retain 25% for reinvestment. What is the price of the stock if the firm decides to retain 25% of its earnings each year moving forward? a. $80 b. $100 c. $90 d. $60 e. $105 f. $133.3

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