Question
1. Chane Corp. is trying to decide whether to cut its expected dividends for next year from $8 per share to $5 per share in
1. Chane Corp. is trying to decide whether to cut its expected dividends for next year from $8 per share to $5 per share in order to have more money to invest in new projects. If it does not cut the dividend, the firms expected rate of growth in dividends is 2.2% per year and the price of its common stock will be $115 per share. However, if it cuts its dividend, the dividend growth rate is expected to be 5.5% in the future. Assuming that the investor's required rate of return for the stock does not change, what would you expect to happen to the price of Syncholes common stock if the company cuts the dividend to $5? Should Chane Corp. cut its dividend?
2. Bonds issued by Risk-Key Lenders Inc. bear a 15% coupon rate, payable semiannually. The bonds mature in 12 years and have a $1,000 face value. Currently the bonds sell for $975. What is the yield to maturity?
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