How do you do Question 8 in the practice problems from the text (page 84)? 

For part A I used Plowback Ration * ROE = 8% for the dividend growth rate, but for the expected return how do we find DIV1, P0, and P1?

How do we solve parts B & C?

For part b) DIV/P = .04  and DIV/EPS = .60.  Use those two equations to find EPS/P.

Then use EPS/P = r(1 - PVGO/P) to find PVGO/P.  This will let you know what percentage of the price future investment opportunities was.  So, the price will drop by (PVGO/P)%.

For part c) If the expected return on new investments is the same as the market capitalization rate, then the PVGO = 0.  So, the price would be the same as in part b).