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

Company Q's current return on equity (ROE) is 16%. It pays

out 60 percent of earnings as cash dividends (payout ratio = 0.60).

Company Q's 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 Q's stock worth per share? $124.4 $115.6 $111.1 $105.6 $121

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