I’m currently dealing with a problem and I don’t succeed in solving it, I have spent the last 4 hours on it and I’m still stuck.
Here it comes:
The Generic Genetic (GG) Corporation pays no cash dividends currently and is not expected to for the next four years. Its latest EPS was $5.40, all of which was reinvested in the company. The firm’s expected ROE for the next four years is 20% per year, during which time it is expected to continue to reinvest all of its earnings. Starting in year 5, the firm’s ROE on new investments is expected to fall to 19% per year. GG’s market capitalization rate is 19% per year.
Currently the best solution I could reach is this one:
5.4×1.2/1.19 + 5.4 (1.2/1.19)^2 + 5.4 (1.2/1.19)^3 + 5.4 (1.2/1.19)^4 + ((5.4×1.2^4)×1.19/0.19)/1.19^5
But it’s unfortunately wrong, I have also tried to compute the discount rate with discount rate = market cap rate + growth rate but it doesn’t provide any relevant result neither unfortunately.
Thank’s in advance,