Cooperton Mining just announced it will cut its dividend from $4.06 to $2.62 per share and use the extra funds to expand. Prior to the announcement, Cooperton's dividends were expected to grow at a 3.2% rate, and its share price was $48.05. With the planned expansion, Cooperton's dividends are expected to grow at a 4.5% rate. What share price would you expect after the announcement? (Assume that the new expansion does not change Cooperton's risk.) Is the expansion a good investment?
Cooperton Mining just announced it will cut its dividend from $4.06 to $2.62 per share and use the extra funds to expand. Prior to the announcement, Cooperton's dividends were expected to grow at a 3.2% rate, and its share price was $48.05. With the planned expansion, Cooperton's dividends are expected to grow at a 4.5% rate. What share price would you expect after the announcement? (Assume that the new expansion does not change Cooperton's risk.) Is the expansion a good investment?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Cooperton Mining just announced it will cut its dividend from
$4.06
to
$2.62
per share and use the extra funds to expand. Prior to the announcement, Cooperton's dividends were expected to grow at a
3.2%
rate, and its share price was
$48.05.
With the planned expansion, Cooperton's dividends are expected to grow at a
4.5%
rate. What share price would you expect after the announcement? (Assume that the new expansion does not change Cooperton's risk.) Is the expansion a good investment?
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