Problem 7-20
	Proposal	Expected Dividend	Dividend Growth Rate	Required Return	Per Share Price
A)	A		5%	15%
B)	B		6%	14%
C)	C		7%	17%
D)	D		4%	16%
E)	E		8%	17%

Management action and stock value REH Corporation's most recent dividend was $3 per share, its expected annual rate of dividend growth is 5%, and the required re- turn is now 15%. A variety of proposals are being considered by management to re- direct the firm's activities. Determine the impact on share price for each of the fol- lowing proposed actions, and indicate the best alternativ a. Do nothing, which will leave the key financial variables unchanged. b. Invest in a new machine that will increase the dividend growth rate to 6% and P7-20 lower the required return to 14%. aluation of Securities c. Eliminate an unprofitable product line, which will increase the dividend growth d. Merge with another firm, which will reduce the growth rate to 4% and raise the e. Acquire a subsidiary operation from another manufacturer. The acquisition should rate to 7% and raise the required return to 17% required return to 16% increase the dividend rowth rate to 8 i andin rease the required return to 17%