Question: Company Qs current return on equity (ROE) is 15%. It pays out 55 percent of earnings as cash dividends (payout ratio = 0.55). Current book

Company Qs current return on equity (ROE) is 15%. It pays out 55 percent of earnings as cash dividends (payout ratio = 0.55). Current book value per share is $51. 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 12.0% and the payout ratio increases to 0.75. The cost of capital is 12.0%

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