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Pleas double-check my work on A, C and D and assist with B. Not sure what to do for B. Thank you. 22) The stock
Pleas double-check my work on A, C and D and assist with B. Not sure what to do for B. Thank you.
22) The stock of Nogro Corporation is currently selling for $10 per share. Earnings per share for Vww. the coming year are expected to be $2. The company has policy of paying out 50% of its earnings each year as dividends. The rest is retained and reinvested in projects that 20% earn a rate of return per year. This situation is expected to continue indefinitely computed A. Assuming the current market price of the stock reflects its intrinsic value as using the constant-growth DDM, what rate of return do Nogro investors require? ww.awo %50 x $2 $1 dividend .5 x. 20 .10 = 10% dividend growth rate $1 +.10 =. $10 10+. 10 .20 As such, the required rate of return is 20% B. By how much does its value exceed what it should be if all earnings were paid as dividends and nothing was reinvested? C. If Nogro were to cut its dividend payout ratio to 25% what would happen to its stock vwww. vvw price? Since the required rate of return for investors is 20%, the same as the return on reinvestment in the company, according to DDM, the stock price should not be affected. D. What if Nogro eliminated the dividend? Once again, since the required rate of return and the rate of return on reinvestment in the company is the same, according to DDM the stock price should not be affected./Step by Step Solution
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