(Common stock valuation) Dubai Metro's stock price was at $100 per share when it announced that it will cut its dividend for next year from $10 per share to $6 per share, with additional funds used for expansion. Prior to the dividend cut, Dubai Metro expected its dividends to grow at a 4 percent rate, but with the expansion, dividends are now expected to grow at 7 percent. How do you think the announcement will affect Dubai Metro's stock price? a. What is the investor's required rate of return for Dubai Metro's stock? % (Round to two decimal places.)
(Common stock valuation) Dubai Metro's stock price was at $100 per share when it announced that it will cut its dividend for next year from $10 per share to $6 per share, with additional funds used for expansion. Prior to the dividend cut, Dubai Metro expected its dividends to grow at a 4 percent rate, but with the expansion, dividends are now expected to grow at 7 percent. How do you think the announcement will affect Dubai Metro's stock price? a. What is the investor's required rate of return for Dubai Metro's stock? % (Round to two decimal places.)
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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Transcribed Image Text:**Common Stock Valuation**
Dubai Metro's stock price was at $100 per share when it announced that it will cut its dividend for next year from $10 per share to $6 per share, with additional funds used for expansion. Prior to the dividend cut, Dubai Metro expected its dividends to grow at a 4 percent rate, but with the expansion, dividends are now expected to grow at 7 percent. How do you think the announcement will affect Dubai Metro's stock price?
a. What is the investor's required rate of return for Dubai Metro's stock?
____% (Round to two decimal places.)
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Part 1
(Common stock valuation) Dubai Metro's stock price was at
$100
per share when it announced that it will cut its dividend for next year from
$10
per share to
$6
per share, with additional funds used for expansion. Prior to the dividend cut, Dubai Metro expected its dividends to grow at a
4
percent rate, but with the expansion, dividends are now expected to grow at
7
percent. How do you think the announcement will affect Dubai Metro's stock price?Question content area bottom
Part 1
a. What is the investor's required rate of return for Dubai Metro's stock?
14.0014.00%
(Round to two decimal places.)Part 2
b. What would be the price of Dubai Metro's stock if they cut the dividend to
$6?
$85.7185.71
(Round to the nearest cent.)Part 3
c. How do you think Dubai Metro's stock price will react to the announcement? (Select from the drop-down menu.)
If Dubai Metro were to cut the dividend, the price of the common stock will
decrease.
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