A company announces a change of dividend policy after paying a dividend equal to 6 per...

 

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A company announces a change of dividend policy after paying a dividend equal to 6 per share. The company decides to retain part of the dividends for next year in order to invest in a project which will create a higher dividend growth. Its dividend next year will thus be equal to 2 per share and it will grow at a rate of 5% in subsequent years. Just before the announcement the stock of the company had a price equal to 150 and its previous dividend growth rate was equal to 2%. What is the price of the stock after the announcement if the cost of equity remains unchanged? (Round your answer to the nearest whole number) A company announces a change of dividend policy after paying a dividend equal to 6 per share. The company decides to retain part of the dividends for next year in order to invest in a project which will create a higher dividend growth. Its dividend next year will thus be equal to 2 per share and it will grow at a rate of 5% in subsequent years. Just before the announcement the stock of the company had a price equal to 150 and its previous dividend growth rate was equal to 2%. What is the price of the stock after the announcement if the cost of equity remains unchanged? (Round your answer to the nearest whole number)

Answer rating: 100% (QA)

To calculate the new stock price we need to determine the present value of all future dividends usin... View the full answer