Lipson Ltd. expects a constant growth rate of 5% in the future. Treasury bills yield 8% and

Question:

Lipson Ltd. expects a constant growth rate of 5% in the future. Treasury bills yield 8% and the market is returning 13% on an average issue. Lipson’s last annual dividend was $1.35. The company’s beta has historically been .9. The introduction of a new line of business would increase the expected growth rate to 7% while increasing its risk substantially. Management estimates the firm’s beta would increase to 1.2 if the new line were undertaken. Should Lipson undertake the new line of business?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...