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Nurta Pharmaceuticals current earnings per share is Rs . 2 0 , which is distributed to its shareholders. The required rate of return for the
Nurta Pharmaceuticals current earnings per share is Rs which is distributed to its
shareholders. The required rate of return for the shareholders is and the market price
of the share is Rs Nutra Pharmaceuticals has three business opportunities.
Option is to make a product that gives return,
Option is expansion of current product that would give
Option is to produce a product that would give return.
Assume all products are scale able, mutually exclusive and are funded only through equity.
To fund the projects, the only option is to reduce the dividend payout to ie dividend
would reduce from Rs per share to Rs per share. The retained part of the dividend
would be used to fund the selected project. Determine the growth rate g bROE for each of the options and the new share price assuming constant growth Comment on the new share price for each of the model.
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