North Great Timber Company will pay a dividend of $1.50 a share next year. After this, earnings

Question:

North Great Timber Company will pay a of $1.50 a share next year. After this, earnings and dividends are expected to grow at a 9 percent annual rate indefinitely. Investors currently require a rate of return of 13 percent. The company is considering several business strategies and wishes to determine the effect of these strategies on the market price per share of its stock.
a. Continuing the present strategy will result in the expected growth rate and required rate of return stated above.
b. Expanding timber holdings and sales will increase the expected growth rate to 11 percent but will increase the risk of the company. As a result, the rate of return required by investors will increase to 16 percent.
c. Integrating into retail stores will increase the growth rate to 10 percent and increase the required rate of return to 14 percent.
From the standpoint of market price per share, which strategy is best?
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...