Answered step by step
Verified Expert Solution
Question
1 Approved Answer
SNV Corp. expects earnings at the end of this year of $5 per share. The company announced today that it will cut dividend from $4
SNV Corp. expects earnings at the end of this year of $5 per share. The company announced today that it will cut dividend from $4 to $2 per share and use its retained earnings to expand its production capacity. After this announcement, SNVs dividend is expected to grow at 6% level. Before the announcement, the firms dividend growth rate was expected to be 3%. The risk of SNVs equity does not change by this new investment. The companys share price was $40 before the announcement.
a. Whats the new share price of SNV after the announcement?
b. What is the return on new investment?
c. Under the new payout ratio, what is the ROIC that guarantees the share price remains unchanged even after the announcement?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started