(Measuring growth) Solarpower \$ystems earned $20 per share at the beginning of the year and paid out $8 in dividends to shareholders (so, D0=$8 ) and retained $12 to invest in new projects with an expected retum on equity of 19 percent. In the future, Solarpower expects to retain the same dividend payout ratio, expects to eam a return of 19 percent on its equity invested in new projects, and will not be changing the number of shares of common stock outstanding. a. Calculate the future growth rate for Solarpower's eamings. b. If the investor's required rate of return for Solarpower's stock is 13 percent, what would be the price of Solarpower's common stock? c. What would happen to the price of Solarpower's common stock if it raised its dividends to $14 and then continued with that same dividend payout ratio permaneney? 5 hould Solarpower make this change? (Assume that the investor's required rate of retum remains at 13 percent) d. What would happened to the price of Solarpower's common stock if it lowered its dividends to $3 and then continued with that same dividend payout ratio permanenty? Does the constant What is the future grown rate for Solarpower's earnings? (Round to two decimal places.) b. If the investor's required rate of return for Solarpower's stock is 13%, what would be the pribe of Solarpower's commen stock? (Round to the nearest cent.) c. What would happen to the price of Solarpower's common stock it it had raised its dividends to $14(D0=$14) and then continued with that same dividend payout ratio permanenity? (Round to the nearest cent.) Snould Solarpower make this change? (Seloct from the drop-down menus.) Solarpower faice ha dividend because the refention reto wal and the value of the cormen stock wil (Round to the nearest cent.) Does the cocstart dindend gromen rete model work hi this case? Why or wery not? (stelect the best cholice below) (Measuring growth) Solarpower Systems earned $20 per share at the beginning of the yoar and paid out $8 in dividends to shareholders (so, D0=$8 ) and retainod $12 to invest in rew projects with an expected rotum on equity of 19 percent. In the future, Solarpowor expects to retain the same dividend payout ratio, expects to eam a return of 19 percent on its equity invested in new projocts, and will not be changing the number of shares of common stock outstanding. a. Calculate the future growth rate for Solarpower's earnings. b. If the irmostor's required rate of return for Solarpower's stock is 13 percent, what would be the price of Solarpower's common stock? c. What would happen to the price of Solarpower's common stock if it raised its dividends to $14 and then continued with that same dividend payout ratio permanenty? Should Solarpower make this change? (Assume that the investor's required rate of retum remains at 13 percent.) d. What would happened to the price of Solarpower's common stock if it lowered its dividends to $3 and then continued with that same dividend payout ratio permanently? Does the conatant dividend growth rate model wock in this case? Why or why not? (Assume that the investor's required rate of return remains at 13 percent and that all future new projects wil eam 19 percent.) Should Solarpower make this change? (Select from the drop-down menus.) Solarpower raise its dividend because the retention ratio will and the value of the common stock will d. What would happen to the price of Solarpower's common slock if it had lowered its dividends to $3(D0=$3) and then continued with that same dividend payout ratio permanenty? (Round to the nearest cont.) Does the constant dividend growth rate model work in this case? Why or why not? (Select the best choice below.) A. No, the constant dividend growth rate model does not work in this case where the required return on the stock is greater than the projected growth rate becacse it is not possible for a firm to grow at such an unsustainable higher rate while the enviroment that houses it can only grow at a lower rate. B. Yes, the constant dividend growth rate model works in this case where the required return on the stock is greater than the projected growth rate because the firmis value wat becorne negative when the ecomony that houses it experiences a substantial lower growth rate. c. Yes, the constant dividend growth rato model works in this case whece the required return on the stock is less than the projected growth rate because the firmis value will become negative when the ecomony that houses it experiences a substantial higher growh rate. D. No, the constant dividend growh rate model does not work in this case where the required return on the stock is loss than the projected growth rate becausu it it not possibie for a firm to grow at such an unsustainable lower rate while the enviroment that houses it can only grow at a higher rate
