You are considering an investment in the shares of Kirk’s Information Inc. The

company is still in its growth phase, so it won’t pay dividends for the next few years. Kirk’s

accountant has determined that their first year’s earnings per share (EPS) is expected to be

$20. The company expects a return on equity (ROE) of 25% in each of the next 5 years but

in the sixth year they expect to earn 20%. In the seventh year and forever into the future,

they expect to earn 15%. Also, at the end of the sixth year and every year after that, they

expect to pay dividends at a rate of 70% of earnings, retaining the other 30% in the

company. Kirk’s uses a discount rate of 15%.

Year

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