You expect that Bean Enterprises will have earnings per share of $2 for the coming year. Bean plans to retain all of its earnings for the next three years. For the subsequent two years, the firm plans on retaining 50% of its earnings. It will then retain only 25% of its earnings from that point forward. Retained earnings will be invested in projects with an expected return of 20% per year. If Bean's equity cost of capital is 10%, then the price of a share of Bean's stock is closest to ________.
A) $24.82
B) $16.54
C) $41.36
D) $66.18

Question

Quizplus · Accepted Answer

C) 11ea84dc_f563_a0e6_9a63_a731769945d2_TB1316_00_TB1316_00 11ea84dc_f563_a0e7_9a63_e76e10809489_TB1316_00_TB1316_00 Each g is calculated as the 20% return on the projects × the retention ratio.

You Expect That Bean Enterprises Will Have Earnings Per Share