Assume the​ following: bulletthe​ investor's required rate of return is 18 ​percent, bulletthe expected level of earnings at the end of this year ​(Upper E 1​) is ​$10​, bulletthe retention ratio is 55 ​percent, bullet the return on equity ​(ROE​) is 18 percent​ (that is, it can earn 18 percent on reinvested​ earnings), and bulletsimilar shares of stock sell at multiples of 5.556 times earnings per share. A. Determine the expected growth rate for dividends. B. Determine the price earnings ratio​(P​/Upper E 1​). C. What is the stock price using the​ P/E ratio valuation​ method?D. What is the stock price using the dividend discount​ model?E. What would happen to the ​P/E ratio ​(P​/Upper E 1​) and stock price if the firm could earn 25 percent on reinvested earnings ​(ROE​)? F. What does this tell you about the relationship between the rate the firm can earn on reinvested earnings and ​P/E​ ratios?
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