Management action and stock value REH Corporations nost redredt the frm\'s acivi

Question

Management action and stock value REH Corporations nost redredt the frm's acivites Determne the impact on share price for each of the folowing proposed actens a Do nothing wich uit eve the key inancial varables unchanged Acquire nancal variaeies unchanged the value of the frm vil belound to the nearest cet) ine Put wil ncreasc tro evondgrows, "ane to 6% raun uereandreuntot8%the ??? ofns trmm@besC (Rand tonnered ant ) ihe m acqures a ubuidtay speration trom another manutacturer that wnil ncorease the dviderd growth ate to 9% and

Explanation / Answer

As per rules I will answer the first 4 sub parts of the question

a)If the firm does nothing:

Price= D0*(1+g)/ (k-g)

= 2.43*(1+5%)/ (15%-5%)

=25.515

b) Price= D0*(1+g)/ (k-g)

= 2.43*(1+7%)/(14%-7%)

=$37.14

c) Price= D0*(1+g)/ (k-g)

= 2.43*(1+6%)/(18%-6%)

=$21.47

d) Price= D0*(1+g)/ (k-g)

= 2.43*(1+3%)/(17%-3%)

=$17.88

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