lonos Inc. only pays dividends to its shareholders. The company currently pays out 60% of its...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
lonos Inc. only pays dividends to its shareholders. The company currently pays out 60% of its earnings in the form of dividends. The company is considering expanding into a new product line. Without the new product line earnings per share (EPS) at the end of the year are expected to be $6 and are expected to grow at 5.6% annually in perpetuity. To finance the investment in the new product line the company will need to permanently cut its dividend payout ratio to 50%. With the new product line earnings per share (EPS) at the end of the year are expected to be $6 and are expected to grow at 6.5% annually in perpetuity. The firm's cost of equity capital (re) is 10%. Should the company reduce its dividend payout ratio to invest in the new product line? lonos Inc. only pays dividends to its shareholders. The company currently pays out 60% of its earnings in the form of dividends. The company is considering expanding into a new product line. Without the new product line earnings per share (EPS) at the end of the year are expected to be $6 and are expected to grow at 5.6% annually in perpetuity. To finance the investment in the new product line the company will need to permanently cut its dividend payout ratio to 50%. With the new product line earnings per share (EPS) at the end of the year are expected to be $6 and are expected to grow at 6.5% annually in perpetuity. The firm's cost of equity capital (re) is 10%. Should the company reduce its dividend payout ratio to invest in the new product line?
Expert Answer:
Answer rating: 100% (QA)
Dividend per share year 1D1EPS year 1Pay Out Ratio 660 360 growt... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
Students also viewed these accounting questions
-
1. XYZ Ltd. ("XYZ") yesterday issued a $1,000 par value 5 year bond ("the Bond"), In evaluating any capital budgeting proposal, XYZ has, historically, utilized a Required Rate of Return of 25%. As a...
-
26. With its current leverage, Impi Corporation will have net income next year of 4.5 million. If Impis corporate tax rate is 35% and pay 8% interest on its debt, how much additional debt can Impi...
-
Ann Carter, Chief Financial Officer of Consolidated Electric Company (Con El), must make a recommendation to Con Els board of directors regarding the firms dividend policy. Con El owns two...
-
Review the media landscape and system in The Bahamas. Which theories/typologies would fit the nation's media best? Explain your answer thoroughly using "Normative Theories of The Media Journalism and...
-
A machine costing $210,000 with a four-year life and an estimated $20,000 salvage value is installed in Calhoon Companys factory on January 1. The factory manager estimates the machine will produce...
-
How can spending go up if the price level falls?
-
What kinds of tasks do you think can be done by machines or computers in the future to help managers improve their employees well-being?
-
In 2010, Leppard Inc. issued 1,000 shares of $10 par value common stock for land worth $40,000. (a) Prepare Leppards journal entry to record the transaction. (b) Indicate the effect the transaction...
-
A book (m -1.6 kg) is being pushed across a table. A force of 20 N is pushing down on the book, while a force of 200 N is pushing to the left. Determine the acceleration of the book.
-
Given the regression equation Y = 100 + 10X a. What is the change in Y when X changes by +3? b. What is the change in Y when X changes by -4? c. What is the predicted value of Y when X = 12? d. What...
-
The MIL1 shown in the figure is rotated at a speed of 2700 rpm. Power transmission between MIL1 and MIL2 is provided by spur gear wheels with tooth numbers and modules z1 = 14 and z2 = 42 and m = 6...
-
Martin Seligman and Mihaly Csikszentmihalyi describe the basic tenets and philosophy of positive psychology. What do you see as the most significant similarities and differences between the...
-
Find data with the following properties: The estimated regression function for the data has a positive slope It is steep for small values of the independent variable but less steep for large values...
-
A projectile is fired with an initial speed of 38.0 m/s at an angle of 43.8 above the horizontal on a long flat firing range Part C Determine the total horizontal distance covered (that is, the...
-
what is the distance of a second order maximum for diffraction grating with 2 . 3 2 . 3 x 1 0 3 1 0 ^ 3 slits / / mm if the screen is 0 . 9 5 0 . 9 5 meters away and orange light of wavelength 6 1 0...
-
A red laser ( lambda r = 6 3 3 nm ) is shone through a narrow slit located 2 m from a screen. When the light source is replaced by a blue laser ( b = 4 8 8 nm ) the position of the first minimum of...
-
3. Consider a fluid flow in spherical coordinates (p, 0,0). (a) Assuming that the velocity field V is characterised by the velocity potential (p), derive the representation for V in terms of and show...
-
Fill in each blank so that the resulting statement is true. 83 + 103 = ______ .
-
Describe the effects, both the format and values, of implementing IFRS on forecasting for public companies. How will private companies' statements using ASPE be affected?
-
Dr. Robert Grossman founded Electro Cardia Systems Inc. (ECS), in 2005. The principal purpose of the firm was to engage in research and development of heart pump devices. Although the firm did not...
-
As she headed toward her boss's office, Emily Hamilton, chief operating officer for the Aerocomp Corporation-a computer services firm that specialized in airborne support-wished she could remember...
-
During 2019, Truong Ltd disposed of four different noncurrent assets. On 1 January 2019 the accounts were as follows. Truong Ltd depreciates its motor vehicles and machines by the straightline method...
-
On 1 July 2019, Weiland Pty Ltd owned several farming vehicles that had cost a total of $155 000. Accumulated depreciation on these vehicles to 1 July 2019 amounted to $73 000. On 30 September 2019,...
-
On 30 June 2019, Wong Ltd reported the following information for equipment in its statement of financial position. Investigation of the property and plant records showed that the equipment consisted...
Study smarter with the SolutionInn App