Conservative Corp, has a dividend policy whereby the company distributes 80% of its earnings every year...
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Conservative Corp, has a dividend policy whereby the company distributes 80% of its earnings every year to its shareholders and retains the rest. The company recently hired a new CEO who thinks that the firm should make more investments in order to grow the size of its assets, so he is proposing to cut the dividend payout ratio to 50%. If the company estimates that the new investment projects that it can take on will earn 20% per year on average and the company's cost of capital is 25%, what kind of effect will this proposal have on the Company's stock price? Should this proposal be accepted? Conservative Corp, has a dividend policy whereby the company distributes 80% of its earnings every year to its shareholders and retains the rest. The company recently hired a new CEO who thinks that the firm should make more investments in order to grow the size of its assets, so he is proposing to cut the dividend payout ratio to 50%. If the company estimates that the new investment projects that it can take on will earn 20% per year on average and the company's cost of capital is 25%, what kind of effect will this proposal have on the Company's stock price? Should this proposal be accepted?
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Related Book For
Advanced Financial Accounting
ISBN: 978-0137030385
6th edition
Authors: Thomas Beechy, Umashanker Trivedi, Kenneth MacAulay
Posted Date:
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