Secure https://www.mathal.com/Student/PlayerHomework.aspx?homeworkId=460856437&q

Question

Secure https://www.mathal.com/Student/PlayerHomework.aspx?homeworkId=460856437&questionId-1; a FINA2230 BUSINESS FINANCE WINTER 2017 Sarah Sedlacek 1202W17 4:46 PM Homework: Chapter 7 Score: 0 of 1 pt P7-20 (similar to) Save 10 of 11 (6 complete) HW Score: 45 45%, 5 of 11 pts E Question Help Management action and stock value REHCorporation's most recent dividend was $1.69 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 dmdend growth rate to 8% and lower the required return to 14%. c. Eliminate an unprottable product line, which will increase the dividend grown rate to 6% and raise the required return to 18% d. Merge with another firm, which will reduce the growth rate to 2% and raise the required return to 18%. e. Acquire a subsidiary operation tom another manufacturer. The acquisiton should increase the dedend growth rate to 8% and increase the required return to 18% Round to the arthe tr does nothing that wll leave the y financial variables unchanged the value ofthe firm will be S nearest cent) 1) Enter your answer in the answer box and then click Check Answer Check e 4 remaining . 09

Explanation / Answer

(a) P0 = D1 / (return - growth) D1 = D0 + growth = 1.69 + 5% 1.74 P0 = 1.74 / (15% - 5%) 17.4 (b) P0 = D1 / (return - growth) D1 = D0 + growth = 1.69 + 8% 1.77 P0 = 1.77 / (14% - 8%) 29.5 (c) P0 = D1 / (return - growth) D1 = D0 + growth = 1.69 + 6% 1.75 P0 = 1.75 / (18% - 6%) 14.583 (d) P0 = D1 / (return - growth) D1 = D0 + growth = 1.69 + 2% 1.71 P0 = 1.71 / (18% - 2%) 10.688 (e) P0 = D1 / (return - growth) D1 = D0 + growth = 1.69 + 8% 1.77 P0 = 1.77 / (18% - 8%) 17.70

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.