Question
A computer company's share price is $130 per share; earnings and dividends are $6.60 a share, and the growth rate is zero. They have just
A computer company's share price is $130 per share; earnings and dividends are $6.60 a share, and the growth rate is zero. They have just announced a new growth strategy whereby the company's earnings would begin growing by 2% per year and remain stable at this new rate. This new growth strategy will require the company to reinvest 30% of their earnings starting at the end of this year (t = 1). What will happen to the price per share of this company?
Price will remain unchanged.
Insufficient information to determine the price change.
Price will decrease by $20.15 per share.
Price will increase by $20.15 per share.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started