Question
Orange Sportswear Inc. (OSI) just announced that it plans to cut its dividend from $1.75 to $1.00 per share and use the extra funds to
Orange Sportswear Inc. (OSI) just announced that it plans to cut its dividend from $1.75 to $1.00 per share and use the extra funds to expand its operations. Prior to this announcement, OSI dividends were expected to grow at 5% per year and OSI's stock was trading at $35.00 per share. With the new expansion, OSI's dividends are expected to grow at 7% per year indefinitely. What is the price per share of OSI after the announcement? (Hint: first solve for the equity cost of capital rE). (See Chapter 7)
A) $30.00
B) $33.33
C) $35.00
D) $37.50
E) $50.00
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