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Intro Boston Bakery's current dividend policy is to pay out 80% of earnings as dividends. It just paid an annual dividend of $3.67 per share,
Intro Boston Bakery's current dividend policy is to pay out 80% of earnings as dividends. It just paid an annual dividend of $3.67 per share, and dividends are expected to grow by 2% per year. The required rate of return is 12%. The company is now considering changing its dividend policy and reinvesting 80% of its earnings for faster growth in the future. Under the new policy, the company expects dividends to grow by 8% per year. However, reinvesting more funds implies paying out less to shareholders, so the last dividend would have been only $0.92 under the new policy. What is the value of the stock under the new policy? Attempt 1/10 for 10 pts. Part 3 Attempt 1/4 for 10pts. What should the company do? Change to the new policy Keep the existing policy
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