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    1. a. Big Chair Corporation has an ROE of 16% and a plowback ratio of 50%. If the coming year's earnings are expected to be $2 per share, at what price will the stock sell? The market capitalization rate is 12%.

    1. b. What price do you expect Big Chair Corporation shares to sell for in 3 years?

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    Solution Preview

    1. a. Big Chair Corporation has an ROE of 16% and a plowback ratio of 50%. If the coming year's earnings are expected to be $2 per share, at what price will the stock sell? The market capitalization rate is 12%.

    growth rate of dividends/earnings=g= plowback ratio x ROE= 50% x ...

    Solution Summary

    Current Stock Price and stock price in 3 years have been calculated, given ROE, plowback ratio and the market capitalization rate.

    $2.19