Question
Hi-Pay Inc. and Lo-Pay Inc. are in the same industry. Both have just declared their first annual cash dividend. Hi-Pay paid a $1.00 dividend and
Hi-Pay Inc. and Lo-Pay Inc. are in the same industry. Both have just declared their first annual cash dividend. Hi-Pay paid a $1.00 dividend and Low-Pay paid a $0.50 (50 cent) dividend. Low-Pay explained it will retain funds to reinvest. It expects to increase its dividend by 8% per year forever. Hi-Pay wants to distribute more cash but has admitted this will limit its dividend growth to 3% per year. Both companies have a required rate of return of 12%. Which company will have a higher stock price?
Group of answer choices
Hi-Pay
Lo-Pay
Both will have the same price.
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