Jumbo Transport, an air-cargo company, expects to have earnings per share of $2.00 in the coming year. It decides to retain 10% of these earnings in order to lease new aircraft. The return on this investment will be 25%
If its equity cost of capital is 11%, what is the expected share price of Jumbo Transport?
A) $12.71
B) $14.83
C) $16.94
D) $21.18
Answer: D
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