P7-20 REH Corporation's most recent dividend was $3 per share, its expected annual rate of dividend...

P7-20 REH Corporation's most recent dividend was $3 per share, its expected annual rate of dividend growth is 5%, and the required return is now 15%. A variety of proposals are being considered by management to redirect the firm's activities. Determine the impact on share price for each of the following proposed actions, and indicate the best alternative. a. Do nothing, which will leave the key financial variables unchanged. b. Invest in a new machine that will increase the dividend growth rate to 6% and lower the required return to 14%. c. Eliminate an unprofitable product line, which will increase the dividend growth rate to 7% and raise the required return to 17%. d. Merge with another firm, which will reduce the growth rate to 4% and raise the required return to 16%. e. Acquire a subsidiary operation from another manufacturer: The acquisition should increase the dividend growth rate to 8% and increase the required return to 17%. Proposal Expected Dividend Dividend Growth Rate Required Return Per Share Price A) A 5% 15% B) B 6% 14% C) C 7% 17% D) D 4% 16% E) E 8% 17% The best alternative for maximizing selling price is:

I NEDD EXPECTED DIVIDEND

Expert Solution

Solution a
	Current Dividend	$ 3.00
	Rate of return	15.00%
	Growth Rate	5.00%

	Share Price	=Current Dividend*(1+Growth rate)/(Rate of return-Growth Rate)
	Share Price	=3*(1+0.05)/(0.15-0.05)
	Share Price	$ 31.50

Solution b
	Current Dividend	$ 3.00
	Rate of return	14.00%
	Growth Rate	6.00%

	Share Price	=Current Dividend*(1+Growth rate)/(Rate of return-Growth Rate)
	Share Price	=3*(1+0.06)/(0.14-0.06)
	Share Price	$ 39.75


Solution c
	Current Dividend	$ 3.00
	Rate of return	17.00%
	Growth Rate	7.00%

	Share Price	=Current Dividend*(1+Growth rate)/(Rate of return-Growth Rate)
	Share Price	=3*(1+0.07)/(0.17-0.07)
	Share Price	$ 32.10

Solution d
	Current Dividend	$ 3.00
	Rate of return	16.00%
	Growth Rate	4.00%

	Share Price	=Current Dividend*(1+Growth rate)/(Rate of return-Growth Rate)
	Share Price	=3*(1+0.04)/(0.16-0.04)
	Share Price	$ 26.00

Solution e
	Current Dividend	$ 3.00
	Rate of return	17.00%
	Growth Rate	8.00%

	Share Price	=Current Dividend*(1+Growth rate)/(Rate of return-Growth Rate)
	Share Price	=3*(1+0.08)/(0.17-0.08)
	Share Price	$ 36.00

jeff jeffy answered 1 year ago

REH Corporation's most recent dividend was $ 2.56 per share, its expected annual rate of dividend...

REH Corporation's most recent dividend was $ 2.56 per share, its expected annual rate of dividend growth is 5%, and the required return is now 15%. A variety of proposals are being considered by management to redirect the firm's activities. Determine the impact on share price for each of the following proposed actions. a. Do nothing, which will leave the key financial variables unchanged. b. Invest in a new machine that will increase the dividend growth rate to 9% and...

REH Corporation's most recent dividend was $2.11 per share, its expected annual rate of dividend growth...

REH Corporation's most recent dividend was $2.11 per share, its expected annual rate of dividend growth is 5%, and the required return is now 15%. A variety of proposals are being considered by management to redirect the firm's activities. Determine the impact on share price for each of the following proposed actions. a. If the firm does nothing that will leave the key financial variables unchanged, the value of the firm will be $__________ b. If the firm invests in...

Management action and stock value REH Corporation's most recent dividend was $1.72 per share, its expected...

Management action and stock value REH Corporation's most recent dividend was $1.72 per share, its expected annual rate of dividend growth is 5%, and the required return is now 15%. A variety of proposals are being considered by management to redirect the firm's activities. Determine the impact on share price for each of the following proposed actions. a. Do nothing, which will leave the key financial variables unchanged. b. Invest in a new machine that will increase the dividend growth...

Management action and stock value???REH? Corporation's most recent dividend was $ 1.92$1.92 per? share, its expected...

Management action and stock value???REH? Corporation's most recent dividend was $ 1.92$1.92 per? share, its expected annual rate of dividend growth is 55?%, and the required return is now 1515?%. A variety of proposals are being considered by management to redirect the?firm's activities. Determine the impact on share price for each of the following proposed actions. a.??Do? nothing, which will leave the key financial variables unchanged. b.??Invest in a new machine that will increase the dividend growth rate to 77?%...

1.) XYZ Corporation's next dividend is expected to be $3 per share. Dividend growth rate has...

1.) XYZ Corporation's next dividend is expected to be $3 per share. Dividend growth rate has been at 2% and expected to be so into the future. If investor's return is 10%, calculate the stock price next year. A) 37.50 B) 38.25 C) 38.50 D) 38.75 E) None of the above Which of the following typically applies to preferred stock but not to common stock? A) Par Value B) Dividend yield C) Cumulative dividends D) It is legally considered equity...

A firm has just paid its most recent annual dividend of $10 per share, and commits...

A firm has just paid its most recent annual dividend of $10 per share, and commits to increase the dividend growing at a rate of 4.5% for the next five years. Afterwards, the dividend will growth at a rate of 3%. Applicable discount rate is 10%. What is the value of a share of this firm’s stock? A) $226.27 B) $153.50 C) $156.84 D) $150.01 E) $154.94

SCI just paid a dividend (D0) of $12.16 per share, and its annual dividend is expected...

SCI just paid a dividend (D0) of $12.16 per share, and its annual dividend is expected to grow at a constant rate (g) of 4.50% per year. If the required return (r) on SCI's stock is 11.25%, then the intrinsic value of SCI's shares is[ Select ] ["$195.25", "$181.25", "$188.25"] ? If SCI's stock is in equilibrium, the current dividend yield on the stock will be [ Select ] ["8.75%", "7.75%", "6.75%"] per share? If SCI's stock is...

A firms most recent annual dividend was $1.50 per share. Over the next two years, the...

A firms most recent annual dividend was $1.50 per share. Over the next two years, the dividend is expected to grow at 12% per year, and then slow to a constant rate of 7% thereafter. If your required rate of return is 10% what is the value of the stock? $78.06 $58.55 $86.28 $54.59 None of the above The Company has 100 million shares outstanding, paid an annual dividend of $0.25 per share to its common stockholders, and has a...

Lawrence Industries’ most recent annual dividend was $1.80 per share (D0 = $1.80). The company expects...

Lawrence Industries’ most recent annual dividend was $1.80 per share (D0 = $1.80). The company expects its dividend to grow at 8% annually for next 3 years, followed by a 4% constant annual growth rate in years 5 to infinity. Market data indicates a beta of 1.25 for Lord of Chips. The expected return on the market portfolio is 9% You are required to; (i) Calculate the required rate of return for Lawrence Industries’ shares using the CAPM assuming a...

Lawrence Industries' most recent annual dividend was $1.44 per share (D0equals$ 1.44), and the firm's required...

Lawrence Industries' most recent annual dividend was $1.44 per share (D0equals$ 1.44), and the firm's required return is 10%. Find the market value of Lawrence's shares when dividends are expected to grow at 20% annually for 3 years, followed by a 4% constant annual growth rate in years 4 to infinity. The market value of Lawrence's shares is $ nothing. (Round to the nearest cent.)

Question