Question
Corporate Financial Management: 4. DublinTech is an all-equity firm and it has been paying out all its earnings as dividend. DublinTechs cost of capital is
Corporate Financial Management:
4. DublinTech is an all-equity firm and it has been paying out all its earnings as dividend. DublinTechs cost of capital is 10%, and its last Earnings Per Share is $2.
(a) Assuming DublinTech keeps paying all its earnings as dividend and there is no growth in its earnings. What is the value of DublinTech stock based on the dividend discount model?
(10 marks)
(b) Suppose that DublinTech just announces its policy to payout 60% of the earnings as dividend. The return of new investment is 15%. What is the stock price for DublinTech according to dividend discount model?
(15 marks)
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Fundamentals of Financial Management
Authors: Eugene F. Brigham, Joel F. Houston
Concise 6th Edition
324664559, 978-0324664553
