The Adams Corporation has earnings of $971,500 with 370,000 shares outstanding Its P/E ratio is 18. The firm is holding $430,000 of funds to invest or pay out in dividends. If the funds are retained, the aftertax return on investment will be 15 percent, and this will add to present earnings. The 15 percent is the normal return anticipated for the corporation, and the P/E ratio would remain unchanged. If the funds are paid out in the form of dividends, the P/E ratio will increase by 10 percent, because the shareholders in this corporation have a preference for dividends over retained earnings. a. Compute the price of the stock under the two plans. (Do not round intermediate calculations. Round the final answers to 2 decimal places.) Retention plan Payout plan Price of stock $ $ Help Save & EX Suomi 4 funds are paid out in the form of dividends, the P/E ratio will increase by 10 percent. because the shareholders in this corporation have a preference for dividends over retained earnings. a. Compute the price of the stock under the two plans. (Do not round intermediate calculations. Round the final answers to 2 decimal places.) 53 Retention plan Payout plan Price of stock $ $ b. Which plan will maximize the market value of the stock? Payout plan Retention plan Activate W Go to Set 44 of 48 Next >