In: Finance
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 a new machine that will increase the dividend growth rate to 6% and lower the required return to 11%, the value of the firm will be $_______
c. If the firm eliminate an unprofitable product line that will increase the dividend growth rate to 6% and raise the required return to 18%, the value of the firm will be $_________
d. If the firm merges with another firm that will reduce the growth rate to 3% and raise the required return to 19%, the value of the firm will be $____________
e. If the firm acquires a subsidiary operation from another manufacturer that will increase the dividend growth rate to 9% and increase the required return to 18%, the value of the firm will be $_______.