ABCo. has 3,000,000 shares issued and outstanding and are about to pay their
annual dividend of $4.00. Investors require a 14 percent rate of return on these
If ABCo. pays all of its earnings per year in dividends what is the current
market price of ABCo. share?
Rather than pay all the earnings out as dividends, the company will retain 25
percent of the earnings and the dividend they are about to pay will be $3.00.
This will result in an estimated growth of 3.5 percent. What will the
company share sell for in the market today?
A new opportunity has just been received by ABCo. and the company needs
all of its earnings for the next 10 years. This will result in the company
suspending or not paying any dividends for the next 10 years. The next
dividend of $4.50 is expected to occur at the end of year 11 and dividends
are expected to grow at 4.0 percent forever. What will the company share
sell for in the market today?
Rather than accepting the opportunity presented in part c, ABCo. has found
another project that will result in the current dividend of $4 being paid;
however, dividends will grow by 10 percent for the next 5 years and then
grow at 3.5 percent forever after the 5 year period. What will the company
share sell for in the market today?
Just when the company thought that all opportunities had been evaluated,
another opportunity has been presented. The new opportunity would see the
$4.00 dividend being paid; however, dividends will grow by 14 percent for
the next 5 years and then the growth will drop to 2 percent forever. What
will the company share sell for in the market today?
If your objective as the financial manager is to maximize shareholder wealth
and each of the above events are mutually exclusive, what would you
recommend to the management team? Explain why. Get Finance homework help today