Jexmon Corporation is expecting that even if the firm does not make a new investmentand pays the

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Question:

Jexmon Corporation is expecting that even if the firm does not make a new investmentand pays the cash dividends to the shareholders from the returns, it will earn $8 per shareof every future period (starting at time1). Nevertheless, the CFO has come up with anopportunity for which the firm needs to retain and invest 25 percent of the earningsbeginning three years from today. This investment opportunity is considered to continueindefinitely. The CFO expects that the firm will earn 15 percent on this additional equityinvestment and the returns will occur one year after every investment is made. Thediscount rate is estimated to be 13 percent and remains same throughout.

Required:
1. Compute the price per share of Jexmon Corp. without making a new investment.
2. Compute the price per share if the new investment is made.
3. Compute the retention ratio of this project.