Question
The Pioneer Corporation currently paid a $2.50 per share dividend on its common stock. Dividends are expected to grow forever at 3%, and investors require
The Pioneer Corporation currently paid a $2.50 per share dividend on its common stock. Dividends are expected to grow forever at 3%, and investors require a 10% rate of return. Pioneers management is planning to enter new, risky markets and thinks that the expected dividend growth rate can be increased to 5%. However, in response to the increased risk, the investors required rate of return is expected to increase. What is the maximum amount that the investors required return can increase before the plan to enter the new markets becomes a bad decision?
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