Radiant Corporation, a market leader dealing in refrigeration products, has been paying dividends consistently over the last
Question:
Radiant Corporation, a market leader dealing in refrigeration products, has been paying dividends consistently over the last several years The growth rate of dividends on an average has been 12%. The capitalization rate of Radiant Corporation is 16%. Consistent with its developmental philosophy Radiant Corporation acquired technology for a new refrigerant that called for huge investment but offered a market potential of growth of 14% in earnings and dividends as well.
The management decided to skip the dividend for the next three years However, as a measure of good corporate governance and to reassure the investors it announced that the dividend would re-commence in 4 years from now at Rs. 12 only and would offer better growth of 14% instead of 12%. What do you think would impact the price of shares of Radiant Corporation in the market of the announcement of a new project and resultant postponement of dividend, assuming Gordon Assumptions?
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter