Over the next three years, the company Paris is expected to pay dividends as follows: Time 1 2 3 Dividend 15 20 24 Thereafter, Paris dividends are expected to grow at a constant rate of 5% per year. Paris should reinvest 40% of its benefits from T = 2. The expected return regarding Paris stocks is 15% Calculate the stock price at the end T 2. If Paris keeps 40% of its EPS to reinvest in new projects, what must be the retum rate of new investments in order to achieve the dividend growth of 5%? What is the stock price today? If Paris changes its dividend distribution policy and decides to distribute all its benefits to its shareholders from T 3, what would be the impact of this policy on the stock price? Comment on the result.

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
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Over the next three years, the company Paris is expected to pay dividends as follows: Time 1 2 3 Dividend 15 20 24 Thereafter, Paris dividends are expected to grow at a constant rate of 5% per year. Paris should reinvest 40% of its benefits from T = 2. The expected return regarding Paris stocks is 15% Calculate the stock price at the end T 2. If Paris keeps 40% of its EPS to reinvest in new projects, what must be the retum rate of new investments in order to achieve the dividend growth of 5%? What is the stock price today? If Paris changes its dividend distribution policy and decides to distribute all its benefits to its shareholders from T 3, what would be the impact of this policy on the stock price? Comment on the result.

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