John Inc. had recently announced $3 earnings per share and the continuation of 30% return on equity. They will also continue their 80% dividend payout ratio. The stock discount rate is 16%. a. Assuming the payout ratio will continue indefinitely and that the return on equity will not change; calculate the Jedi stock price. b. Management considers continental expansion. For that purpose, they will have to reduce the dividend payout ratio for ten years to 20%, after which they will return it to 80% indefinitely; Calculate the stock price if they follow through with that plan. c. Management considers aggressive worldwide expansion. For that purpose, they will eliminate dividends payout for eight years, after which they will return it to 80% indefinitely; Calculate the stock price if they follow through with that plan.

John Inc. had recently announced $3 earnings per share and the continuation of 30% return on equity. They will also continue their 80% dividend payout ratio. The stock discount rate is 16%. a. Assuming the payout ratio will continue indefinitely and that the return on equity will not change; calculate the Jedi stock price. b. Management considers continental expansion. For that purpose, they will have to reduce the dividend payout ratio for ten years to 20%, after which they will return it to 80% indefinitely; Calculate the stock price if they follow through with that plan. c. Management considers aggressive worldwide expansion. For that purpose, they will eliminate dividends payout for eight years, after which they will return it to 80% indefinitely; Calculate the stock price if they follow through with that plan.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 10P

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