Intro

Alberta Oilsands Inc. has a share price of $30 and an expected EPS of $7 next year. The company currently pays out 100% of earnings as dividends, but is considering a new policy of paying out just 40% of dividends. Retained earnings are expected to earn a return of 6.4%.

Attempt 1/10 for 10 pts.

Part 1

What is the cost of equity?

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Attempt 1/10 for 10 pts.

Part 2

What will be the next dividend under the new policy?

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Attempt 1/10 for 10 pts.

Part 3

What will be the growth rates of earnings and dividends under the new policy?

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Attempt 1/10 for 10 pts.

Part 4

What will be the share price under the new policy?

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