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Management action and stock value REH Corporation's most recent dividend was $2.78 per share, its expected annual rate of dividend growth is 5%, and the
Management action and stock value REH Corporation's most recent dividend was $2.78 per share, its expected annual rate of dividend growth is 5%, and the required return is now 15%. A variety of proposals are being considered by management to redirect the firm's activities. Determine the impact on share price for each of the following proposed actions.
- Do nothing, which will leave the key financial variables unchanged.
- Invest in a new machine that will increase the dividend growth rate to 9% and lower the required return to 11%.
- Eliminate an unprofitable product line, which will increase the dividend growth rate to 7% and raise the required return to 16%.
- Merge with another firm, which will reduce the growth rate to 1% and raise the required return to 19%.
- Acquire a subsidiary operation from another manufacturer. The acquisition should increase the dividend growth rate to 9% and increase the required return to 16%.
a. If the firm does nothing that will leave the key financial variables unchanged, the value of the firm will be
(Round to the nearest cent.)
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