Question: Company Qs current return on equity (ROE) is 16%. It pays out 60 percent of earnings as cash dividends (payout ratio = 0.60). Current book

Company Qs current return on equity (ROE) is 16%. It pays out 60 percent of earnings as cash dividends (payout ratio = 0.60).

Current book value per share is $62. Book value per share will grow as Q reinvests earnings.

Assume that the ROE and payout ratio stay constant for the next three years. After that, competition forces ROE down to 12.5% and the payout ratio increases to 0.70.

The cost of capital is 10.0%.

What is Qs stock worth per share?

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