ompany Qs current return on equity (ROE) is 16%. It pays out 50 percent of earnings as cash dividends (payout ratio = 0.50). Current book value per share is $42. Book value per share will grow as Q reinvests earnings.

Assume that the ROE and payout ratio stay constant for the next two years. After that, competition forces ROE down to 8% and the payout ratio increases to 0.90. The cost of capital is 15%.

Question: What is Qs stock worth per share?

(Choose the option closest to your answer)

Multiple Choice

$33

$41

$36

$44

$39