Question
The Forzani Group Ltd. expects to have earnings per share of $6 in the coming year. Rather than reinvest these earnings and grow, the firm
The Forzani Group Ltd. expects to have earnings per share of $6 in the coming year. Rather than reinvest these earnings and grow, the firm plans to pay out all of its earnings as dividend.
A) Consider the above information. With the expectation of no growth (zero growth), what is the Forzani Group's current stock price if the required return on the stock is 10 percent and the ROE is 1 percent?
b) Consider the above information. Suppose The Forzani Group could cut its dividend payout ratio to 75% and use the retained earnings to open new stores and grow its business at a rate of 3% in the foreseeable future. Calculate the current share price for the Forzani Group under the new policy assuming that the discount rate is unchanged at 10%
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