Question
LewCo announces on January 3, 2017 that recent housing crash and subsequent regulatory changes has reduced demand for their construction projects, resulting in a change
LewCo announces on January 3, 2017 that recent housing crash and subsequent regulatory changes has reduced demand for their construction projects, resulting in a change to their earnings outlook and dividend policy. They announce that they plan to hold their dividend constant at $3 per year for the foreseeable future.
a. What do you predict will be the new share price assuming the cost of capital is 11.3%
b. You believe the housing market will recover and LewCo will resume growing its dividend. What is the value of the company assuming dividends growth is zero for five years and then grows again at 5% per year?
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