Surf & Turf Hotels is a mature business, although it pays no cash dividends. Next year’s earnings are forecast at $52 million. There are 10 million outstanding shares. The company has traditionally used 50% of earnings to repurchase shares of stock and has reinvested the remaining earnings. With reinvestment, the company has generated steady growth averaging 5% per year. Assume the cost of equity is 10%. 1. Surf & Turf’s CFO announces a switch from repurchases to a regular cash dividend. Next year’s dividend will be $3.10 per share. The CFO reassures investors that the company will continue to pay out 50% of earnings and reinvest 50%. All future payouts will come as dividends, however. What would you expect to happen to Surf & Turf’s stock price
Surf & Turf Hotels is a mature business, although it pays no cash dividends. Next year’s earnings are
1. Surf & Turf’s CFO announces a switch from repurchases to a regular cash dividend. Next year’s dividend will be $3.10 per share. The CFO reassures investors that the company will continue to pay out 50% of earnings and reinvest 50%. All future payouts will come as dividends, however. What would you expect to happen to Surf & Turf’s stock price? Ignore taxes.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
