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    Polytechnic State University Sanluis
    Jan-2006 - Nov-2010

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    Polytechnic State University
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Category > Business & Finance Posted 04 May 2017 My Price 7.00

Growth Opportunities

Growth Opportunities Lewin Skis, Inc., (today) expects to earn $7.50 per share for each of the future operating periods (beginning at time 1) if the firm makes no new investments and returns the earnings as dividends to the shareholders. However, Clint Williams, president and CEO, has discovered an opportunity to retain and invest 25 percent of the earnings beginning three years from today. This opportunity to invest will continue for each period indefinitely. He expects to earn 11 percent on this new equity investment, the return beginning one year after each investment is made. The firm’s equity discount rate is 13 percent throughout.

a. What is the price per share of Lewin Skis, Inc., stock without making the new investment?

b. If the new investment is expected to be made, per the preceding information, what would the price of the stock be now?

c. Suppose the company could increase the investment in the project by whatever amount it chose. What would the retention ratio need to be to make this project attractive?

 

 

Answers

Alpha Geek
(8)
Status NEW Posted 04 May 2017 03:05 PM My Price 7.00

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file 1493913243-Answer.docx preview (365 words )
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