Ma4. SNV Corp. expects earnings at the end of this year of $5 per share. The company announced today that it will cut dividend from $4 to $2 per share and use its retained earnings to expand its production capacity. After this announcement, SNV’s dividend is expected to grow at 6% level. Before the announcement, the firm’s dividend growth rate was expected to be 3%. The risk of SNV’s equity does not change by this new investment. The company’s share price was $40 before the announcement. a. What’s the new share price of SNV after the announcement? b. What is the return on new investment? c. Under the new payout ratio, what is the ROIC that guarantees the share price remains unchanged even after the announcement?
Dividend Policy
A dividend is a part of the profit paid to the shareholder in an organization. The management of the organization has the right to decide the policy for giving a dividend from the earnings to the shareholder. However, an organization is not in the obligation to declare a dividend for the investor. Dividend policy differs from organization to organization. As the management has the only authority to decide dividend rate, dividend amount, and time of dividend payout by considering all other elements that create an impact on the payment of a dividend.
Stocks And Dividends
Stock or equities are generally sold and bought in the Stock Exchange or which is popularly known as the stock market. Stocks are issued in the Stock Exchange for the sole purpose of raising funds for the Corporation or the company itself. Now since an individual has purchased a portion of the Corporation or company, he or she may claim to be a part of the earnings or profit of the company.
Ma4.
SNV Corp. expects earnings at the end of this year of $5 per share. The company announced today that it will cut dividend from $4 to $2 per share and use its
a. What’s the new share price of SNV after the announcement?
b. What is the
c. Under the new payout ratio, what is the
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