Consider the information given below.

existing ROE = 20%; this will continue for the next 6 years.

rS= 12%

B0= $18

payout ratio = 30%

Using the residual income model, calculate the stock share value foreach of thefollowing possibilities.

(a)From the end of year 6 to infinity, the ROE = 12%.

(b)From the end of year 6 to infinity, the continuing residual income is a perpetuity.

(c)From the end of year 6 to infinity, continuing residual income isdetermined by a persistence factor = 0.35.

(d)At the end of year 6 the P/B ratio is projected to be 1.6.

3.Considerthe RI multi-stage model. Using the info in (2), solve the model for the casewhere w = 0. Explain how this relates toother calculations in (2).

4.Consider the RI multi-stage model. Using the info in (2), solve the model for the casewhere w = 1. Explain how this relates to other calculations in (2).