Answered step by step
Verified Expert Solution
Link Copied!

Question

00
1 Approved Answer

Paul is the CEO of CU . When he took over the company 8 years ago the price of $ 2 0 per share. CO

Paul is the CEO of CU. When he took over the company 8 years ago the price of $20 per share. CO is an all equity firm that has a policy paying out of 85%  of its earning in dividends. Nell wants to increase the amount of money he plows back into the firm in order to grow the company. He expects the company to continue earning 12 %  annual IRR on the capital they invest. OVer the past 12 months, CU paid $3 in dividends. Assume the effective annual discount rate for CU is 12%. What is the impact of Paul's stocks if he increases the plowback ration to 60% and keeps it there forever(i.e how much value does the new investment plan to creaste or destroy per share?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting Theory

Authors: William R. Scott

7th edition

978-0132984669

More Books

Students also viewed these General Management questions