Calculate the price of pp today

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Reference no: EM13754840

PP Ltd. expects to have earnings this year of $4 per share. It plans to retain all of its earnings for the next two years. It will retain 50% of its earnings in year 3 and year 4. It will retain 20% of earnings from year 5. Each year, retained earnings will be invested in new projects with an expected return of 25% per year. Any earnings that are not retained will be paid out as dividends. Assume that all earnings growth comes from the investment of retained earnings. Cost of capital is 12%. Calculate the price of PP today.

Reference no: EM13754840

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