Business
Business, 15.07.2021 19:00, bryn2433

Next year, NPI expects net income of $16 million. It plans to reinvest 50% of its earnings and pay out the rest as dividends. Its cost of equity capital is 12%. If NPI earns a 16% rate of return on the funds reinvested, what is the growth rate and value of NPI? Hypothetically, had the firm not reinvested any of its earnings and paid out 100% of earnings as dividends, what would have been the value? How much does reinvesting contribute to firm value?

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