Expected growth rate during the high growth period

Beta= 1.5, Treasury rate= 6%, Unlevered beta=0.6, debt equity ratio= 0.3
MPS=10X2.5=$25
EPS=$2
DPS= 20%X2=$0.4
G= ROE X RETENTION RATIO
ROE= 17%
DPS 0.4
Retention ratio=1- = 1- =0.984
MPS 25
Expected growth, g= ROE X RETENTION RATIO= 17%x0.984=0.16728= 16.73%

Terminal value per share at the end of high growth period

CF Terminal value 0.4 25
+ = + = $21.94
( 1+ r ) t (1+r ) n (1+5 %) 3 (1+ 5 %)3

Value per share using the dividend discount model

DPS 0.4
Present stock value = = =¿ $40
R DISCOUNT −R DIVIDEND GROWTH 6 %−5 %