Question: The market consensus is that Arboretum Ducks has a return on new investment of 10%, has an equity cost of capital of 8%, and plans

The market consensus is that Arboretum Ducks has a return on new investment of 10%, has an equity cost of capital of 8%, and plans to maintain indefinitely its traditional retention rate of 0.7. This years earnings were equal to 5. The annual dividend was just paid.

1. Find the price at which Arboretum Ducks stock should sell.

2. Calculate the forward P/E ratio.

3.,Suppose your research team convinces you that Arboretum Ducks will announce momentarily that it will immediately increase its retention rate to 0.8. What is the new predicted price of the stock?

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