Posted by Ariel on October 11, 1999 at 16:11:08:

I am taking an intro finance course at my university. we have an assignment and one of the questions involves calculations...can anyone help? here's the question:

Union Chemical is not a very profitable company. The Government wishes to assist in keeping it open. Gov't agrees to pay whatever is necessary to yield Union a 10% return on equity. At end of year, company expected to pay $4 dividend per share. It has been reinvesting 50% of earnings which have been growing at 5% per year.

1) suppose company continues this growth pattern. determine expected long-term rate of return for purchasing stock at $100 per share.

2)suppose they are expaning company over next 5 yrs. company will reinvest 70% of earnings for 5 yrs. beginning year 6, will again be able to pay out 50% of earnings. determine firm's stock price once this announcement is made and its consequences for the firm are known to investors

3)what is the relationship between the intrinsic price and the market price of Union Chemical's shares?

I have no idea how to tackle this question and how to determine the numbers!! if anyone could help, I would be soooo grateful! please e-mail me! ariel@idirect.ca