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The stock of Neo Corporation is currently selling for $20 per share. Earnings per share in the coming year are expected to be $1. The
The stock of Neo Corporation is currently selling for $20 per share. Earnings per share in the coming year are expected to be $1. The company has a payout policy of paying out 30% of its earnings each year in the form of dividends. The rest is retained and invested in projects that earn a 10% rate of return per year. This situation is expected to continue indefinitely. 1. What rate of return do Neo's investors require? 2. The company wants to have a payout policy that maximizes its sharehold- ers' value. Is the current payout policy optimal? If not, what proportion of earnings should the company pay out each year in the form of dividends? The stock of Neo Corporation is currently selling for $20 per share. Earnings per share in the coming year are expected to be $1. The company has a payout policy of paying out 30% of its earnings each year in the form of dividends. The rest is retained and invested in projects that earn a 10% rate of return per year. This situation is expected to continue indefinitely. 1. What rate of return do Neo's investors require? 2. The company wants to have a payout policy that maximizes its sharehold- ers' value. Is the current payout policy optimal? If not, what proportion of earnings should the company pay out each year in the form of dividends
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