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A firm reinvests 60% of its earnings in projects with return onequity of 10%. The market capitalization rate is 15%. If theexpected year-end dividend is $2/share and paid-out earnings of$5/share, find out the growth rate and present value of the growthopportunity. Given:Long-term government bondrate 4%Historical risk premium on themarket 7%Beta estimate of Sylvia’sSeparates 0.95Price range of Sylvia’s Separates’ shareprice $5 - $9Proportion of earningsretained 0.6Average return on retainedearnings 12%Proposed dividend per share nextyear $0.30Current annual interest on company’s loan frombank 6%Taxrate 25%Based on the information given above,find out the required rate of return using CAPM find out the growth rate and calculate the required rate ofreturn based on Gordon’s dividend growth model(DGM) Explain the Gordon growth model as a technique for thevaluation of common stocks and discuss what kind of stocks thismodel is more appropriate for valuing. Discuss how PE ratio can be used in equity valuation and itspitfalls.