The stock of Nogro Corporation is currently selling for $10 per share. Earnings per share in the coming year are expected to be $2. The company has a policy of paying out 50% of its earnings each year in dividends. The rest is retained and invested in projects that earn a 20% rate of return per year. This situation is expected to continue indefinitely.

a.	Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Nogros investors require? (Do not round intermediate calculations.)

Rate of return

%

b.	By how much does its value exceed what it would be if all earnings were paid as dividends and nothing were reinvested?

PVGO

$

c-1.

If Nogro were to cut its dividend payout ratio to 25%, what would happen to its stock price?

	Stock price would be decreased
	Stock price would be increased
	Stock price would be unaffected

c-2.

If Nogro eliminated the dividend, what would happen to its stock price?

	Stock price would be unaffected
	Stock price would be increased
	Stock price would be decreased