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(15) K-Food is considering a new food line.They just paid a dividend of $1.10.Without the new line, K-Food will retain 10% of earnings.They have an
(15) K-Food is considering a new food line.They just paid a dividend of $1.10.Without the new line, K-Food will retain 10% of earnings.They have an 8% return on equity (ROE).Investors require a return of 6%.
a. Find the current stock price without the new line.
b. With the new line, K-Food expects to drop the dividend to $.80 per share for the next 3 years.After year 3, dividends will start to grow at 2% in perpetuity.Find the price with the new line.
c. Based only on share price, should K-Food develop the new line? Why or why not?
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