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Assume that Growth Inc. maintains a 100% dividend payout policy, what is the most that you will pay for its stock? (5 points) If Growth
- Assume that Growth Inc. maintains a 100% dividend payout policy, what is the most that you will pay for its stock?
- (5 points) If Growth Corp just discovers a new growth opportunity with an ROE of 20%. The management decides to pay out 40% of its earnings starting from the next year's dividend and forever after, so that it can reinvest the rest in the growth opportunity. Suppose the growth opportunity lasts forever, what is the present value of its growth opportunity (PVGO)?
- (2 points) What is the ROE of the growth opportunity such that PVGO of Growth Corp is exactly zero, while everything else remain the same as in Question (2)?
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Principles of Managerial Finance
Authors: Lawrence J. Gitman, Chad J. Zutter, Wajeeh Elali, Amer Al Roubaix
Arab World Edition
1408271583, 978-1408271582
