Company Q$$s current return on equity $($ROE$)$ is $15\%.$ It pays out $55$ percent of earnings as cash dividends $($payout ratio $=0\mathrm{.}55).$ Current book value per share is $$66.$ Book value per share will grow as Q reinvests earnings.

Assume that the ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to $12\mathrm{.}0\%$ and the payout ratio increases to $0\mathrm{.}80.$ The cost of equity is $12\mathrm{.}0\%.$

What are Q$$s EPS and dividends in years $1,2,3,4,$ and $5?$

What is Q$$s stock worth per share?

Problem $4-15$ Two$-$stage DCF model

Company Q$\text{'}$s current return on equity $\backslash ((\backslash$mathrm$\{$ROE$\})\backslash )$ is $\backslash (15\backslash \%\backslash ).$ It pays out $55$ percent of earnings as cash dividends $($payout ratio $\backslash (=0\mathrm{.}55\backslash )).$ Current book value per share is $\backslash (\backslash$$ $66\backslash ).$ Book value per share will grow as $\backslash ($ Q $\backslash )$ reinvests earnings.

Assume that the ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to $12\mathrm{.}0\backslash \%$ and the payout ratio increases to $0\mathrm{.}80.$ The cost of equity is $\backslash (12\mathrm{.}0\backslash \%\backslash ).$

a$.$ What are Q$\text{'}$s EPS and dividends in years $1,2,3,4,$ and $5?$

b$.$ What is Q$\text{'}$s stock worth per share?

Answer is complete but not entirely correct.

Complete this question by entering your answers in the tabs below.

Required $\backslash ($ A $\backslash )$

Required B

What are Q$\text{'}$s EPS and dividends in years $1,2,3,4,$ and $5?$

Note: Do not round intermediate calculations. Round your answers to $2$ decimal places.