morebeans

1)

k = Cost of Capital = 15%
g = Sustainable Growth Rate = ROE x Retention Rate = 20% * 0.55 = 11%
EPS = $6
D0 = EPS x Dividend Payout Ratio = 6 * 0.45 = $2.7
D1 = Next year's Dividend = D0*(1+g) = 2.7*(1+0.11) = $2.997
P0 = Current Year's Price = D1/(k-g)
P0 = 2.997 / (0.15-0.11)
P0 = 2.997/0.04
P0 = $74.925


Based upon Dividend Discount Motel with Sustainable Growth.

morebeans

And in 1st question I used ''k' as cost of capital. It's basically cost of equity. Capital also includes debt.