Dinnis plc has 650,00 shares in issue.Nextyear's dividend is expected to be 0.36 per share and dividends
Question:
Dinnis plc has 650,00 shares in issue.Nextyear's dividend is expected to be 0.36 per share and dividends are then expected togrow at 5% per annum.ost of capital for Dinnis is 11%.Dinnis is considering an investment project which will change
expectations about the future growth of dividends and the cost ofcapital.if the company goes ahead with the project nextyear'sdividends are expected to be reduced to 34p per share, but they are then expected to grow at 8% per annum. However,the firm'srequired rate of return will rise to 13% ifit goes ahead with the project. Assume that the share price is determined using the
dividend valuation model and that prices adjust as soon as an investment decision is made. For the situation where the company,decides to go ahead with the project:
What is (i) the increase in the share price and (il) the net present value of the project?
Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.
a (i) 0.70 and (ii)455,000
b(1) 0.70 and (Ii)520,000
c(0) 0.80 and (ii) 455,000
d1)0.80 and (ii) 520,000
e None of the above
International Financial Management
ISBN: 978-0132162760
2nd edition
Authors: Geert Bekaert, Robert J. Hodrick