Question
Consider HW Inc., a company that produces electric cars. In the coming year, the firm expects earnings per share of $4 and plans to pay
Consider HW Inc., a company that produces electric cars. In the coming year, the firm expects earnings per share of $4 and plans to pay a dividend of $3 per share. The dividends of this company are expected to grow at a rate of g = 3% in the foreseeable future. HW's operations are financed only by equity and its price per share is currently $40. Suppose that HW has a new investment opportunity that is expected to have a return of 8%. In order to undertake this project, the company would like to reduce its dividend pay-out rate to 50%. If it undertook this investment, HW's new price per share would be ______________________ , and therefore, HW ______________ undertake this investment. (Use the dividend discount model of valuation).
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