Assuming that ROCE (return on common equity), g (the growth rate of the book value of common shareholders' equity) and rE (the cost of equity capital) are constant, that markets are efficient, and:

1. the company's dividend payout ratio d is 20%

2. g is 8%

3. the company's stock has an equity beta of 1.2

4. the risk free rate is 1% and the market risk premium is 6%

a) Explain the direction and magnitude of change when:

i) market risk premium increases to 7%

ii) market expectation of the dividend payout ratio changes to 50%

iii) market expectation of future ROCE changes to 9%