S Company's stock is trading at 20 dollars per share. The company’s planned dividends are 2 dollars per share with a growth rate of 5%. Today, the company announced that it will increase its planned dividend from 2 dollars to 3.8 dollars per share. With the new dividend policy, the firm expects that its dividends will grow at a lower constant rate, which is 3% per year, indefinitely. Assuming that the required rate of return remains unchanged, what would be the value of a share of the firm after the announcement? a.32.62 b.38.00 c.31.67 d.39.14

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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S Company's stock is trading at 20 dollars per share. The company’s planned dividends are 2 dollars per share with a growth rate of 5%. Today, the company announced that it will increase its planned dividend from 2 dollars to 3.8 dollars per share. With the new dividend policy, the firm expects that its dividends will grow at a lower constant rate, which is 3% per year, indefinitely. Assuming that the required rate of return remains unchanged, what would be the value of a share of the firm after the announcement?

 

a.32.62

 

b.38.00

 

c.31.67

 

d.39.14

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