Soylent Corp expects earnings this year (at t=1) of $8.93 per share. It currently has a...
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Soylent Corp expects earnings this year (at t=1) of $8.93 per share. It currently has a share price of $56.47. The firm pays 30% of earnings in dividends and reinvests 70% of earnings in new projects. Reinvested earnings provide a return on new investment of 15.2% per annum. However, due to a disappearing customer base, Soylent Corp will soon announce that the firm will begin paying out 60% of all earnings as dividends, retaining now 40% for investment in new projects. The return provided by earnings reinvested in new projects will remain at 15.2% per annum. What will be the share price after this announcement? Investors are not expecting the firm to change its payout policy. Soylent Corp expects earnings this year (at t=1) of $8.93 per share. It currently has a share price of $56.47. The firm pays 30% of earnings in dividends and reinvests 70% of earnings in new projects. Reinvested earnings provide a return on new investment of 15.2% per annum. However, due to a disappearing customer base, Soylent Corp will soon announce that the firm will begin paying out 60% of all earnings as dividends, retaining now 40% for investment in new projects. The return provided by earnings reinvested in new projects will remain at 15.2% per annum. What will be the share price after this announcement? Investors are not expecting the firm to change its payout policy.
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