Question: FIRSTNET.com is a highly priced Internet stock whose earnings in the coming year (E1) is expected to be $1.00 per share. Investors expect these earnings

FIRSTNET.com is a highly priced Internet stock whose earnings in the coming year (E1) is expected to be $1.00 per share. Investors expect these earnings to grow at 100% (g) per year for 5 years. This growth rate is estimated by assuming that FIRSTNET reinvests all of its earnings at a return (R) of 100% per year. After 5 years of this high growth, competition is expected to sharply reduce the profitability of FIRSTNET. Consequently, the forecast is that company will then retain only 40% of its 2earnings and invest them at a return of 25% per year. Investors in FIRSTNET require a return (k) of 20% per year:

1. What is the price per share of the FIRSTNET.com?

2. What is the premium for growth of the stock?

3. What fraction of the premium for growth is due to super growth (i.e. the initial high growth)?

4. What is FIRSTNET.coms PE ratio?

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