Cooperton Mining just announced it will cut its dividend from $4.09 to $2.53 per share and use the extra funds to expand. Prior to the announcement, Cooperton's dividends were expected to grow at a 3.3% rate, and its share price was $48.03. With the planned expansion, Cooperton's dividends are expected to grow at a 4.6% 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 $4.09 to $2.53 per share and use the extra funds to expand. Prior to the announcement, Cooperton's dividends were expected to grow at a 3.3% rate, and its share price was $48.03. With the planned expansion, Cooperton's dividends are expected to grow at a 4.6% 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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Ram Shack Ltd has just paid a dividend of $3.00 a share. Investors require a 13% per annum return on investments such as Ram Shack. What would a share in Ram Shack Ltd be expected to sell for today (J Ram Shack Ltd has just paid a dividend of $3.00 a share. Investors require a 13% per annum return on investments such as Ram Shack. What would a share in Ram Shack Ltd be expected to sell for today (January, 2018) if the dividend is expected to increase by 20% in January, 2019, 16% in January, 2020, 12% in January, 2021 and thereafter by 5 percent a year forever, from January, 2022 onwards?

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