PPT Slide
1. ks = D1/P0 + g = 10%; F = 20%.
2. Investors put up $100, expect EPS = DPS = 0.1($100) = $10.
3. But company nets only $80.
4 If earn ks = 10% on $80, EPS = DPS = 0.10(80) = $8. Too low. Price falls.
5. Need to earn ke = 10%/0.8 = 12.5%.
6. Then EPS = 0.125(80) = $10.
Conclusion: ke = 12.5% > ks = 10.0%.