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What will xyz share price be once announcement is made

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XYZ Inc. has been reinvesting 60% of earnings into a project that yields a return of 12%. The dividend yield is expected to be 3% next year. The current share price of XYZ Inc. is $120 / share.

Problem (a) If XYZ Inc. can continue to reinvest at this rate and earn 12% on the investment, how rapidly will the earnings and dividends grow? Also, calculate the market required rate of return.

Problem (b) What is the present value of the growth opportunities (PVGO) of XYZ Plc.? Comment briefly on the PVGO you obtained.

Problem (c) Now XYZ Plc. announces that it will reinvest 80% of its earnings for the next 5 years. Starting in Year 6, the company will again be able to pay out 40% of its earnings. What will XYZ's share price be once this announcement is made? formula sheet

Reference no: EM132778589

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