PLEASE USE EXCEL WITH FORMULAS Problem $4[5$ points$]$:

The stock of Cacique Corp. is expected to have earnings per share $($EPS$)$ next year of $$6$ per share. The

required return for its stock is $15\%.$

$($a$)$ What is the stock price if Cacique retains $50\%$ of its earnings to finance future growth, and these

funds are invested in projects with a return on equity of $15$ percent? Assume that Cacique has

more projects right now, and it has to retain $70\%$ instead of $50\%.$ What is the price of the stock

now if the return on equity is still $15$ percent?

$($b$)$Assume right now that Cacique C$.$A$.$ can earn $18\%(ROE=18\%)$ on its investments. What is the

price if the retention ratio is $50\%?$ What is the price if Cacique retains $70\%?$

$($c$)$ Can you explain the difference obtained in the results of $($a$)$ and $($b$)?$