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A. Assume a US based all-equity firm earnings have been growing at a 12 percent...

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Finance

A. Assume a US based all-equity firm earnings have been growing at a 12 percent annual rate and this is expected to continue to do so for 5 more years. Afterwards, the growth rate is expected to drop to a constant 3 percent rate. The firm expects from now on to always maintain a 60 percent payout ratio, and this years retained earnings net of dividends were reported to be $5 million. The firms beta is 0.7, the risk-free rate is 6 percent, and the market risk premium is 7 percent. Given that the firm currently has 7.5 million shares outstanding, what is the market value of its equity if the market is in equilibrium?

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