(Measuring growth) Solarpower Systems earned $20 per share at the beginning of the year and paid out $9 in dividends to shareholders (so, Do = $9) and retained $11 to invest in new projectswith an expected return on equity of 19 percent. In the future, Solarpower expects to retain the same dividend payout ratio, expects to earn a return of 19 percent on its equity invested innew projects, and will not be changing the number of shares of common stock outstanding.a. Calculate the future growth rate for Solarpower's earnings.b. If the investor's required rate of return for Solarpower's stock is 15 percent, what would be the price of Solarpower's common stock?c. What would happen to the price of Solarpower's common stock if it raised its dividends to $12 and then continued with that same dividend payout ratio permanently? Should Solarpower makethis change? (Assume that the investor's required rate of return remains at 15 percent.)d. What would happened to the price of Solarpower's common stock if it lowered its dividends to $3 and then continued with that same dividend payout ratio permanently? Does the constantdividend growth rate model work in this case? Why or why not? (Assume that the investor's required rate of return remains at 15 percent and that all future new projects will earn 19 percent.)@2a. What is the future growth rate for Solarpower's earnings?% (Round to two decimal places.)b. If the investor's required rate of return for Solarpower's stock is 15%, what would be the price of Solarpower's common stock?$(Round to the nearest cent.)c. What would happen to the price of Solarpower's common stock if it had raised its dividends to $12 (D.= $12) and then continued with that same dividend payout ratio permanently?$(Round to the nearest cent.)Should Solarpower make this change? (Select from the drop-down menus.)7Solarpowerraise its dividend because the retention ratio willand the value of the common stock will7d. What would happen to the price of Solarpower's common stock if it had lowered its dividends to $3 (D=$3) and then continued with that same dividend payout ratio permanently?$(Round to the nearest cent.)Does the constant dividend growth rate model work in this case? Why or why not? (Select the best choice below.)OA. No, the constant dividend growth rate model does not work in this case where the required return on the stock is greater than the projected growth rate because it is not possible forF2WSXmand#330F3EDC$4ODDDODF4RF%5VF5TGA6MacBook AirBF6Y&7H44F7UN*8JPILTA1MI9KMOSISODDF9OV1OHLF16P-^.command:....5FIX{+11+[?optionNext41)1F12}1delete

Use Dividend discount growth model to calculate Pricing of the common stock.EPS $ 20.00Dividend…

(Measuring growth) Solarpower Systems earned $20 per share at the beginning of the year and paid out $9 in dividends to shareholders (so, Do = $9) and retained $11 to invest in new projects with an expected return on equity of 19 percent. In the future, Solarpower expects to retain the same dividend payout ratio, expects to earn a return of 19 percent on its equity invested in new projects, and will not be changing the number of shares of common stock outstanding. a. Calculate the future growth rate for Solarpower's earnings. b. If the investor's required rate of return for Solarpower's stock is 15 percent, what would be the price of Solarpower's common stock? c. What would happen to the price of Solarpower's common stock if it raised its dividends to $12 and then continued with that same dividend payout ratio permanently? Should Solarpower make this change? (Assume that the investor's required rate of return remains at 15 percent.) d. What would happened to the price of Solarpower's common stock if it lowered its dividends to $3 and then continued with that same dividend payout ratio permanently? Does the constant dividend growth rate model work in this case? Why or why not? (Assume that the investor's required rate of return remains at 15 percent and that all future new projects will earn 19 percent.) a. What is the future growth rate for Solarpower's earnings? % (Round to two decimal places.) b. If the investor's required rate of return for Solarpower's stock is 15%, what would be the price of Solarpower's common stock? (Round to the nearest cent.)

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 15P