Question 1 Growth rates, required return, and value Consider a company that is about to embark on a high-risk project. You believe that when the news is announced, shareholders will react by requiring a higher return from the company and by expecting faster growth. The company is expected to a $1.75 per share dividend next year. You think that the current price of $70 is fair, given the expected 9% growth rate. However, after the announcement investors will expect a 10% growth rate and increase the return by 1.2%. Required: a. How will the stock price change because of the announcement? b. What will the change mean for stockholders?

Question 1 Growth rates, required return, and value Consider a company that is about to embark on a high-risk project. You believe that when the news is announced, shareholders will react by requiring a higher return from the company and by expecting faster growth. The company is expected to a $1.75 per share dividend next year. You think that the current price of $70 is fair, given the expected 9% growth rate. However, after the announcement investors will expect a 10% growth rate and increase the return by 1.2%. Required: a. How will the stock price change because of the announcement? b. What will the change mean for stockholders